The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

The four Visegrad states — Poland, the Czech Republic, Slovakia (until 1993 Czechoslovakia) and Hungary — form a compact area between Germany and Austria in the west and the states of the former USSR in the east. They are bounded by the Baltic in the north and the Danube river in the south. They are cut by the Sudeten and Carpathian mountain ranges, which divide Poland off from the other states. Poland is an extension of the North European plain and like the latter is drained by rivers that flow from south to north west — the Oder, the Vlatava and the Elbe, the Vistula and the Bug. The Danube is the great exception, flowing from its source eastward, turning through two 90-degree turns to end up in the Black Sea, forming the barrier and often the political frontier between central Europe and the Balkans. Hungary to the east of the Danube is also an open plain. The region is historically and culturally part of western Europe, but its eastern Marches now represents a vital strategic zone between Germany and the core of the European Union to the west and the Russian zone to the east.

Economy and Society

/pdf/the-theory-of-industrial-organization-19bejph0ej.pdf

The Theory of Industrial Organization

The Theory of Monopolistic Competition.

On plebes' first day at West Point, called R-Day, they strip down to their underwear. Their hair is cut off. They are put in uniform. They then must address an older cadet, with the proper salute and with the statement: "Sir, New Cadet Doe reports to the cadet in the Red Sash for the first time as ordered." Plebes must stand and salute and repeat, and stand and salute and repeat, until they get it exactly right, all the while being reprimanded for every tiny mistake. In the summary of David Lipsky (2003, pp. 145-154), who spent four years tracking a company of cadets at West Point: "On R-Day you surrender your old self in stages." But R-day is just the beginning of the training and personal re-engineering that is to come, so that West Point graduates emerge four years later as loyal officers in the U.S. Army. Lipsky shows that, despite some failure, this tough program is remarkably successful in creating officers with the will to lead in battle. Economists' current picture of organizations and work incentives has no place for the West Point program and the motivations it seeks to inculcate in recruits. In a standard economic model, an individual's preferences are fixed, and utility depends only on pecuniary variables. The Army's aim at West Point is to change cadets' preferences. They wish to inculcate non-economic motives in the cadets so that they have the same goals as the U.S. Army. Alternatively stated, the goal of West Point is to change the identity of the cadets, so they will think of themselves, above all else, as officers in the U.S. army. They will feel bad about themselves-they will lose utility-if they fall short of the ideals of such an officer. This change in identity

/pdf/identity-and-the-economics-of-organizations-3cjjrjaibe.pdf

Identity and the Economics of Organizations

We study price competition in the presence of search costs and product differentiation. The limit cases of the model are the "Bertrand Paradox," the "Diamond Paradox," and Chamberlinian monopolistic competition. Market prices rise with search costs and decrease with the number of firms. Prices may initially fall with the degree of product differentiation because more diversity leads to more search and more competition. Equilibrium diversity rises with search costs, while the optimum level falls, so entry is excessive. The market failure is most pronounced for low preference for variety and high search costs.

https://www.jstor.org/stable/pdfplus/2556072.pdf

Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model

https://economics.virginia.edu/sites/economics.virginia.edu/files/anderson/longsurpbnd12.pdf

Efficiency and surplus bounds in Cournot competition

This article introduces status as reflecting an agent's claim to recognition in her work. This is a scarce resource: increasing an agent's status requires that another agent's status be decreased. Higher-status agents are more willing to exert effort in exchange for money; better-paid agents would exert higher effort in exchange for improved status. The results are consistent with actual management practices: (i) egalitarianism is desirable in a static context; (ii) in a long-term work relationship, juniors' compensation is delayed; and (iii) past performance is rewarded by pay increases along with improved status within the organization's hierarchy.

/pdf/status-and-incentives-4t49kg9sma.pdf

Status and Incentives

Improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also to higher prices, so consumer surplus can go up or down, while profits rise. With enough quality asymmetry, though, the higher-quality (and hence larger) firm's price falls with more information, so both effects benefit consumers. This occurs when comparative advertising is used against a large firm by a small one. Comparative advertising, as it imparts more information, therefore helps consumers. Although it also improves the profitability of the small firm, overall welfare goes down because of the large loss to the attacked firm.

/pdf/comparative-advertising-disclosing-horizontal-match-121r1fxyww.pdf

Comparative advertising: disclosing horizontal match information

We analyze the effect of consumer information on firm pricing in a model where consumers search for prices and matches with products. We consider two types of consumers. Uninformed consumers do not know in advance their match values with firms, whereas informed consumers do. Prices are lower the greater the proportion of uninformed consumers. Hence uninformed consumers exert a positive externality on the others, in contrast to standard results. This leads to socially excessive investment in gathering prior information when aggregate demand is price-sensitive.

Régis Renault

Papers

Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model

Efficiency and surplus bounds in Cournot competition

Status and Incentives

Comparative advertising: disclosing horizontal match information

Consumer Information and Firm Pricing: Negative Externalities from Improved Information