Microeconomics (Pricing with Market Power, Ch 11)
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A Brief Primer on the Economics of Targeted Advertising
ECONOMIC ISSUES A Brief Primer on the Economics of Targeted Advertising by Yan Lau Bureau of Economics Federal Trade Commission January 2020 Federal Trade Commission Joseph J. Simons Chairman Noah Joshua Phillips Commissioner Rohit Chopra Commissioner Rebecca Kelly Slaughter Commissioner Christine S. Wilson Commissioner Bureau of Economics Andrew Sweeting Director Andrew E. Stivers Deputy Director for Consumer Protection Alison Oldale Deputy Director for Antitrust Michael G. Vita Deputy Director for Research and Management Janis K. Pappalardo Assistant Director for Consumer Protection David R. Schmidt Assistant Director, Oÿce of Applied Research and Outreach Louis Silva, Jr. Assistant Director for Antitrust Aileen J. Thompson Assistant Director for Antitrust Yan Lau is an economist in the Division of Consumer Protection of the Bureau of Economics at the Federal Trade Commission. The views expressed are those of the author and do not necessarily refect those of the Federal Trade Commission or any individual Commissioner. ii Acknowledgments I would like to thank AndrewStivers and Jan Pappalardo for invaluable feedback on numerous revisions of the text, and the BE economists who contributed their thoughts and citations to this paper. iii Table of Contents 1 Introduction 1 2 Search Costs and Match Quality 5 3 Marketing Costs and Ad Volume 6 4 Price Discrimination in Uncompetitive Settings 7 5 Market Segmentation in Competitive Setting 9 6 Consumer Concerns about Data Use 9 7 Conclusion 11 References 13 Appendix 16 iv 1 Introduction The internet has grown to touch a large part of our economic and social lives. This growth has transformed it into an important medium for marketers to serve advertising. -
BIS Working Papers No 136 the Price Level, Relative Prices and Economic Stability: Aspects of the Interwar Debate by David Laidler* Monetary and Economic Department
BIS Working Papers No 136 The price level, relative prices and economic stability: aspects of the interwar debate by David Laidler* Monetary and Economic Department September 2003 * University of Western Ontario Abstract Recent financial instability has called into question the sufficiency of low inflation as a goal for monetary policy. This paper discusses interwar literature bearing on this question. It begins with theories of the cycle based on the quantity theory, and their policy prescription of price stability supported by lender of last resort activities in the event of crises, arguing that their neglect of fluctuations in investment was a weakness. Other approaches are then taken up, particularly Austrian theory, which stressed the banking system’s capacity to generate relative price distortions and forced saving. This theory was discredited by its association with nihilistic policy prescriptions during the Great Depression. Nevertheless, its core insights were worthwhile, and also played an important part in Robertson’s more eclectic account of the cycle. The latter, however, yielded activist policy prescriptions of a sort that were discredited in the postwar period. Whether these now need re-examination, or whether a low-inflation regime, in which the authorities stand ready to resort to vigorous monetary expansion in the aftermath of asset market problems, is adequate to maintain economic stability is still an open question. BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The views expressed in them are those of their authors and not necessarily the views of the BIS. -
Simple Structural Econometrics of Price Elasticity
Simple Structural Econometrics of Price Elasticity Catherine Cazals Fr¶ed¶erique F`eve University of Toulouse University of Toulouse (GREMAQ and IDEI) (GREMAQ and IDEI) Patrick F`eve¤ Jean{Pierre Florens University of Toulouse University of Toulouse (CNRS{GREMAQ and IDEI) (IUF, GREMAQ and IDEI) Abstact The identi¯cation of demand parameters from individual data may be very di±cult due to the lack of price variation. The aim of this paper is to deliver a simple methodology for the treatment of this kind of data. The approach relies on a simple structural model of consumer behavior wherein demand and expenditure depend on a heterogeneity factor. Using the restrictions created by this structural model, we consider the identi¯cation of the price elasticity of demand. We ¯rst show that the structural parameters are not identi¯ed in the one period case. An extension of the model to a two period case allows to identify the structural parameters and thus the price elasticity of demand over periods. Keywords: structural model, heterogeneity factor, identi¯cation, price elasticity JEL Class.: C1, C2, D1 Introduction The identi¯cation of price elasticity from cross section individual data is impossible due to the lack of price variation in the sample. Even if panel data are available, the slow modi¯cation of tari®s and the usual small number of periods make very hazardous the estimation of the price elasticity. The aim of this paper is to present a simple methodology for the treatment of this kind of data and to show that we can take some advantage from ¤Corresponding author: GREMAQ{Universit¶e de Toulouse I, manufacture des Tabacs, b^at. -
Price Discrimination in Service Industries
University of Pennsylvania ScholarlyCommons Operations, Information and Decisions Papers Wharton Faculty Research 6-2012 Price Discrimination in Service Industries Anja Lambrecht Katja Seim University of Pennsylvania Naufel Vilcassim Amar Cheema Yuxin Chen See next page for additional authors Follow this and additional works at: https://repository.upenn.edu/oid_papers Part of the Operations and Supply Chain Management Commons, Other Business Commons, Other Economics Commons, and the Service Learning Commons Recommended Citation Lambrecht, A., Seim, K., Vilcassim, N., Cheema, A., Chen, Y., Crawford, G. S., Hosanagar, k., Iyengar, R., Koenigsberg, O., Lee, R., Miravete, E. J., & Sahin, O. (2012). Price Discrimination in Service Industries. Marketing Letters, 23 (2), 423-438. http://dx.doi.org/10.1007/s11002-012-9187-0 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/oid_papers/78 For more information, please contact [email protected]. Price Discrimination in Service Industries Abstract This article outlines recent methods and applications directed at understanding the profit and consumer welfare implications of increasingly prevalent price discrimination strategies in the service sector. These industries are typically characterized by heterogeneity in consumers’ valuation and usage of the service, resale constraints, and a focus on price as the service’s key attribute. The article focuses on how firms use nonlinear pricing or bundling strategies to benefit from the heterogeneity in consumer demand. We describe the basic economic model commonly used in the literature to analyze such strategic choices and present recent methodological improvements to this benchmark. A discussion of existing applications and future research opportunities concludes the article. Keywords nonlinear pricing, bundling, service industries Disciplines Operations and Supply Chain Management | Other Business | Other Economics | Service Learning Author(s) Anja Lambrecht, Katja Seim, Naufel Vilcassim, Amar Cheema, Yuxin Chen, Gregory S. -
The Willingness to Pay, Accept, and Retire∗
The Willingness to Pay, Accept, and Retire∗ Philipp Schreiber,y Christoph Merkle,z Martin Weberx January 2016 Abstract Today's pay-as-you-go social security systems are put under pressure by increasing life ex- pectancy, the baby boomer generation entering retirement, and an early effective retirement age. In developed countries, many employees retire before reaching the full retirement age. Conduct- ing a large online experiment, we relate the retirement timing decision to the disparity between the willingness-to-accept (WTA) and the willingness-to-pay (WTP). Our results reveal that the framing of the decision problem strongly influences the reservation price for early retirement. The willingness-to-accept for early retirement is more than twice as high as the corresponding willingness-to-pay. Using actual values from the German social security system as market prices, we show that the presentation in a WTA frame can induce early retirement. In this frame, the implicit probability of retiring early increases by 30 percentage points. We also show that the disparity between WTA and WTP is correlated with loss aversion. Repeating the analysis in a representative household survey (German SAVE panel) we find similar results. JEL-Classification Codes: D03, D14, H55, J26 Keywords: Retirement Timing, Willigness-to-pay, Willigness-to-accept, Social Security. ∗We are grateful to the Frankfurter Allgemeine Zeitung for conducting the study with us. Intensive discussion with two journalists, Anne-Christin Sievers and Patrick Bernau, helped to considerably improve the questionnaire. We would also like to thank Sven Nolte for helpful comments. We further thank seminar participants at the University of Mannheim, participants of the IMEBESS 2014, Oxford, the Whitebox Advisors Graduate Student Conference 2014, Yale, the EF Conference 2014, Zuerich, and the German Finance Association 2014, Karlsruhe for valuable suggestions. -
Price and Volume Measurement in Services
Price and volume measurement in services Current Eurostat recommendations for NSIs Paul Konijn, Eurostat – C1 National Accounts OECD Workshop on Services 15-16 November 2004, Paris Outline Introduction General recommendations Retail trade Finance and insurance Telecommunications, software and business services Developing new services price indices Paris, 15-16 November 2004 Introduction December 2001: Eurostat Handbook on Price and Volume Measures in National Accounts Handbook = culmination of several years of work with EU Member States on all topics related to volume measurement Starting point: GDP growth rates sometimes difficult to compare due to different methodologies Paris, 15-16 November 2004 Introduction (cont.) Handbook is elaboration of ESA95 (and SNA93) and gives detailed guidance on deflation of products Main issues also laid down in two legal acts (from 1998 and 2002) Since 2001: implementation of handbook in Member States All Member States have provided Inventory of sources and methods Paris, 15-16 November 2004 Notes on productivity measurement Note: handbook is about national accounts -> focus is on macro picture of the economy Deflation of inputs equally important (and equally difficult) for productivity analysis!! Paris, 15-16 November 2004 A/B/C classification Classification of methods: A methods: ideal B methods: acceptable alternative C methods: unacceptable Move gradually over time from C to B to A C methods “outlawed” by 2006 Generally, input methods are C methods Paris, 15-16 November 2004 -
MICROECONOMICS and POLICY ANALYSIS - U8213 Professor Rajeev H
MICROECONOMICS AND POLICY ANALYSIS - U8213 Professor Rajeev H. Dehejia Class Notes - Spring 2001 Auctions Wednesday, February 14 Reading: Handout, Thaler, Milgram There are two basic forms of auctions: Sealed bid submissions and open bids. In a sealed bid auction individuals do not know what others are bidding. Two types of Sealed Bid Auctions: 1st Price sealed bid auction: The highest bid submitted will be the winning bid. The winner pays what he/she bid. 2nd Price sealed bid auction: Everyone submits sealed bids and the winner is the one who submits the highest bid BUT the price paid by the winner is the 2nd highest bid submitted. Two types of open auctions: English auction: The bidding starts low and incrementally rises until someone is the highest bidder and no one is willing to outbid the highest bidder. Dutch auction: The price starts very high and is keeps going down until someone bids. The first person to bid wins. Why Study Auctions? 1) Auctions can be an efficient method of valuing goods. For example: rights to air waves, signals and bandwidth. The government auctioned off parts of the spectrum in anticipation of new technology. The auctions were appealing because well- structured auctions get people to reveal the true valuation of the good. The company (private entity) actually ends up paying to the government what the good is worth to them. It turned out with these auctions that the willingness to pay for a slice of the spectrum, as revealed by the auction outcome, was much higher than expected. 2) Procurement: Governments and entities want to procure goods and services at the lowest possible price (like an auction in reverse). -
Testing Neoclassical Competitive Market Theory in the Field
Testing neoclassical competitive market theory in the field John A. List* Agricultural and Resource Economics, University of Maryland, 2200 Symons Hall, College Park, MD 20742-5535 Communicated by Marc Nerlove, University of Maryland, College Park, MD, October 4, 2002 (received for review July 25, 2002) This study presents results from a pilot field experiment that tests terminates. One major difference between my experimental predictions of competitive market theory. A major advantage of design and Chamberlain’s design is that I allow for learning, this particular field experimental design is that my laboratory is the because subjects interact in multiple market periods. A more marketplace: subjects are engaged in buying, selling, and trading fundamental difference, of course, is that I am observing the activities whether I run an exchange experiment or am a passive behavior of agents who have endogenously chosen certain roles observer. In this sense, I am gathering data in a natural environ- within the market [such as being a buyer (nondealer) or seller ment while still maintaining the necessary control to execute a (dealer), intense or casual market participant, etc.]. A further clean comparison between treatments. The main results of the important characteristic of my field experiment is that I organize study fall into two categories. First, the competitive model predicts the four market treatments in a manner that allows me to explore reasonably well in some market treatments: the expected price and the role of buyer and seller experience on market outcomes: quantity levels are approximated in many market rounds. Second, treatment one includes randomly chosen buyers and randomly the data suggest that market composition is important: buyer and chosen sellers; a second treatment matches super-experienced seller experience levels impact not only the distribution of rents buyers with relatively inexperienced sellers; a third treatment but also the overall level of rents captured. -
2.2 Price Discrimination 2.2 Price Discrimination
2.2 Price Discrimination Matilde Machado Download the slides from: http://www.eco.uc3m.es/~mmachado/Teaching/OI-I-MEI/index.html 1 2.2 Price Discrimination Everyday situations where price discrimination occurs: Quantity Discounts – The same good is sold at different per unit prices to the same consumer depending on the quantity he/she buys. Ex: 2 for 1. When telephone companies charge a fixed tariff independently of the number of calls. It is a quantity discount since those that make more calls pay less per call. Doctor in a small village Doctor that charges different fees to insured and uninsured patients – the same service is sold to different consumers at different prices. Geographical Discrimination– “The Economist” Netherlands 1.69 Euros, Spain 1.46 Euros Industrial Organization- Matilde Machado 2.2. Price Discrimination 2 2.2 Price Discrimination More examples … Student Discounts Tariffs varying with the time of the day (telephone, electricity, etc) “Speedy boarding” at EASYJET Price of meals at restaurants (lunch is much cheaper than dinner). Frequent flyer programs Also, similar programs at the Laundry, the hairdresser, etc. offer loyalty cards where they mark the number of services consumed. After X services, we get 1 for free. Coupons – allow charging a lower price to those that have more time or more elastic demands. Industrial Organization- Matilde Machado 2.2. Price Discrimination 3 The carrier identifies the consumer’s willingness to pay by the number of days prior to the trip he/she buys the ticket Industrial Organization- Matilde Machado 2.2. Price Discrimination 4 2.2 Price Discrimination … a true example from The NY times blog: http://freakonomics.blogs.nytimes.com/2008/05/08/to-discriminate-you-need-to-separate/ “Other than the names on the packages and a bit of different description, the products are identical; and even the styles of the packages are identical. -
The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation?
Scholarship Repository University of Minnesota Law School Articles Faculty Scholarship 2010 The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation? Daniel J. Gifford University of Minnesota Law School, [email protected] Robert T. Kudrle University of Minnesota Hubert Humphrey Institute of Public Affairs, [email protected] Follow this and additional works at: https://scholarship.law.umn.edu/faculty_articles Part of the Law Commons Recommended Citation Daniel J. Gifford and Robert T. Kudrle, The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation?, 43 U.C. DAVIS L. REV. 1235 (2010), available at https://scholarship.law.umn.edu/faculty_articles/358. This Article is brought to you for free and open access by the University of Minnesota Law School. It has been accepted for inclusion in the Faculty Scholarship collection by an authorized administrator of the Scholarship Repository. For more information, please contact [email protected]. The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation? Daniel J. Gifford* Robert T. Kudrle** TABLE OF CONTENTS INTRODUCTION: LAWS TARGETING PRICE DISCRIMINATION .............. 1237 1. ECONOMIC CONCEPTIONS OF PRICE DISCRIMINATION: A BRIEF R EVIEW ..................................................................... 1239 A. Price Discrimination,Defined .......................................... 1239 B. Arbitrage,Market Power, and PriceDiscrimination ........ 1243 C. Price DiscriminationInvolving the Rates -
Price Discrimination, Search, and Negotiation in an Oligopoly: a Field Experiment in Retail Electricity∗
Price Discrimination, Search, and Negotiation in an Oligopoly: A Field Experiment in Retail Electricity∗ David P. Byrney Leslie A. Martiny Jia Sheen Nahy December 21, 2019 Abstract We use a field experiment to study price discrimination in a market with price posting and negotiation. Motivated by concerns that low-income consumers do poorly in mar- kets with privately-negotiated prices, we built a call center staffed with actors armed with bargaining scripts to reveal the determinants of negotiated prices. By experimen- tally manipulating how information is revealed within a sequential bargaining game, we identify price discrimination based on perceived search costs at the start of negotiations, which can be overcome if consumers reveal that they are informed. Combining posted and negotiated prices, we document important asymmetries between incumbents’ and entrants’ pricing structures that segment consumers based on their willingness to search and bargain. Finally, we show that incomplete subsidy pass-through for low-income households observed in our market is not due to discriminatory targeting; it can be explained by variation in consumers’ willingness and ability to search and bargain. JEL Classification: D83, L13, Q41 Keywords: Price discrimination, negotiation, search, natural field experiment, elec- tricity markets ∗We acknowledge support from the Australian Research Council and the Faculty of Business and Eco- nomics at The University of Melbourne. This research is governed by Ethics Approval 1648136 from The University of Melbourne. We have received helpful comments and suggestions from Aaron Barkley, Severin Borenstein, Jeremy Bornstein, Melisa Bubonya, Zan Fairweather, Matthew Freedman, Joseph Harrington, Matthew Lewis, Simon Loertscher, Fiona Scott Morton, Helena Perrone, Michelle Sovinsky, Steve Puller, Steve Tadelis, and participants at the 2017 Asia-Pacific IO Conference, 2019 Melbourne IO and Theory Workshop, 2019 POWER Workshop, 2019 NBER Energy Markets Workshop, and 2019 MaCCI Summer Institute in Competition Policy. -
Regulation History As Politics Or Markets
Book Review Regulation History as Politics or Markets The Regulated Economy: A Historical Approach to Political Economy (Claudia Goldin & Gary D. Libecap, eds.). Chicago: University of Chicago Press, 1994. 312 + viii pp., bibliographies, index, drawings, tables. ISBN: 0-226-30110-9. Cloth. $56.00. Herbert Hovenkampt Introduction: The S-P-P and Neoclassical Models of Regulation This interesting group of essays explores the history of American regulatory policy in an assortment of markets. The editors introduce their collection as "an effort to better understand the historical development of government intervention."' Although some authors represented in the collection are more explicit than others, most accept some version of the Stigler-Posner-Peltzman (S-P-P) model of regulation, which views political bargaining among rent-seeking special interest groups as the best explanation of regulatory outcomes. 2 While this interest group model is often powerful, it is hardly the only model for explaining regulation. Most of the regulation described in these essays can be fully accounted for by neoclassical economics, whose regulatory theory looks at the characteristics of the economic market to which regulation is applied, rather than the political market in which the decision to regulate is made. Under the S-P-P theory, interest groups form political coalitions in order to promote legislation that advances their own interests by limiting competition or restricting entry by new firms. Elected legislators t Ben V. & Dorothy Willie Professor of Law, University of Iowa. 1. THE REGULATED ECONOMY: A HISTORICAL APPROACH TO POLITICAL ECONOMY 2 (Claudia Goldin & Gary D. Libecap eds., 1994) [hereinafter THE REGULATED ECONOMY].