Showing papers on "Factor price published in 1985"
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TL;DR: In this paper, the authors used the industry wealth effect of a large sample of horizontal mergers, including cases found in violation of antimonopoly laws, to support the market concentration doctrine that a collusive, anticompetitive merger generates an increase in the industry's quality-adjusted product price.
Abstract: The market concentration doctrine predicts that a horizontal merger is more likely to have collusive, anticompetitive effects the greater the merger-induced change in industry concentration. Since a collusive, anticompetitive merger generates an increase in the industry's quality-adjusted product price (or a decrease in factor prices), it also follows from the doctrine that the merger-induced expected benefits to the product market rivals of the merging firms should be an increasing function of the concentration change. The empirical results of this paper, which are based on the industry wealth effect of a large sample of horizontal mergers, including cases found in violation of antimonopoly laws, fail to support this prediction. This conclusion is robust with respect to assumptions concerning the probability that a proposed merger will be prevented by the law enforcement agencies, and it continues to hold after transforming the industry wealth effect into a hypothetical, constant expected change in the industry's product price. The results imply that the levels of concentration and market shares found in the Department of Justice's merger guidelines are unlikely to identify truly anticompetitive mergers.
223 citations
TL;DR: In this article, the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors is examined, and it is shown that, as more and more factor-price rigidities are imposed on an economy, it comes closer to a state of factor price equalization.
Abstract: This paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors. In particular, the paper derives some comparative statics properties of such economies, compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously, and investigates the relationship between factor-price rigidities, factor-price equalization, and the pattern of specialization. Among the new results which are proved, it is shown that, as more and more factor-price rigidities are imposed on an economy, it comes "closer" to a state of factor-price equalization.
125 citations
TL;DR: In this paper, a theoretical model of price determination in a marketing channel with risk-averse firms is developed, which shows that if marketing firms are competitive and decreasingly absolute risk averse, then an increase in output price risk should result in higher expected marketing margins.
Abstract: This paper seeks to determine the effect of changes in output price risk on marketing margins. A theoretical model of price determination in a marketing channel with risk-averse firms is developed. This model shows that if marketing firms are competitive and decreasingly absolute risk averse, then an increase in output price risk should result in higher expected marketing margins. Empirical evidence from the wheat marketing channel supports the theoretical model: increased price variability significantly increases wheat marketing margins for both the farm-mill margin and the mill-retail margin. These results suggest a potential benefit from price stabilization programs.
117 citations
TL;DR: In the absence of a forward market, expected utility maximizing farmers facing just price risk or both price risk and quantity risk behave similarly as mentioned in this paper. But this is not true if forward contracting is possible, because variation in the commodity price affects a farmer's wealth through the value of his futures position, the output and the covariance between price and output.
Abstract: Expected utility maximizing farmers facing just price risk or both price risk and quantity risk behave similarly in the absence of a forward market. If forward contracting is possible, that is not true because variation in the commodity price affects a farmer's wealth through the value of his futures position, the value of his output and through the covariance between price and output. This covariance affects a farmer's optimal scale of production, his optimal forward position and the interrelationship between the scale of production and forward trading.
61 citations
TL;DR: In this article, the authors consider the problem of explaining why the PPP does not match the exchange rate even in long-run free trade equilibrium and the explanation of the discrepancy is a natural subject of scientific interest.
Abstract: This paper is concerned with the "price level" in the sense used in a recent paper by Kravis and Lipsey entitled "Toward an Explanation of National Price Levels" [15]. The price level of a particular country relative to the base country is defined as the ratio of the purchasingpower parity (PPP) to the exchange rate. It has become generally recognized' that the PPP need not equal the exchange rate even in long-run free trade equilibrium and the explanation of the discrepancy is a natural subject of scientific interest. There is a voluminous literature on temporary deviations of PPP from the exchange rate that are explained in terms of monetary disturbances and random shocks. There is a much smaller literature on long-run or structural factors that explain why PPP does not coincide with the exchange rate. The present paper falls in the second category; we shall assume the economy is in monetary and balance-of-payments equilibrium. The term "price level" as used in Kravis and Lipsey [15] may be confusing because that term usually refers to the price of goods in terms of money. The term "real price level" seems more appropriate, in that the concept refers to a ratio of two prices. The "real price level" is what the tourist has in mind when he goes to a poor country and remarks, "My, but prices are low here." A major feature of the existing literature on long-run or structural explanations of the real price level is the emphasis on the distinction between tradables and nontradables; it is typically assumed that the law of one price holds for tradables but not for nontradables, which are dominated by services. The productivity differential model, as stated by Balassa [2] for example, assumes that international differences in labor productivity are greater in commodities (tradables) than in services. It follows that services will be relatively cheap in poor (low-productivity) countries and that, consequently, the real price level (relative to a base country) will rise with per capita income. Recently, Bhagwati [5] has shown that the low relative price of services in poor countries can be explained by a capital-labor model without recourse to the assumption that production functions differ internationally. In Bhagwati's model, rich countries export capital-intensive commodities and poor countries export labor-intensive commodities, but even though commodity prices are equalized through trade, complete specialization prevents factor prices from being equalized; since services are assumed to be labor-intensive relative to any commodity, they are cheaper in poor countries than in rich countries.
58 citations
TL;DR: In this paper, it was shown that the expected compensating variation is not a valid utility indicator, since it is completely insensitive to the consumer's attitudes toward risk, and therefore cannot reflect, the precise factor of interest in such studies.
Abstract: Suppose a consumer faces a price which is uncertain ex ante. A question which often arises is whether the consumer would benefit from a stabilization policy under which the price would then be fixed and known with certainty. Many authors have addressed this question by calculating the expected compensating variation of the price change; others have used expected Marshallian consumer's surplus, often with the explanation that it is a good approximation to expected compensating variation.2 An important unresolved issue, however, is whether expected compensating variation does in fact provide a valid ranking of stochastic prices against stabilized prices, i.e., a ranking in agreement with that given by expected utility. In Section 2, we demonstrate that expected compensating variation is not in general a valid utility indicator. In essence, while utility comparisons under uncertainty require the use of the cardinal properties of (von NeumannMorgenstern) utility functions, the expected surplus measures depend only on ordinal preference rankings. Expected compensating variation, then, is completely insensitive to, and cannot reflect, the precise factor of interest in suchstudies: the consumer's attitudes toward risk. We then derive a set of restrictions on the utility function which are necessary in order for expected compensating variation to be a valid measure. We see that price stabilization policies can only be evaluated with compensating variation if consumer preferences are assumed to satisfy quite stringent requirements. This is in constrast to the familiar certainty case in which compensating variation always provides correct rankings.
53 citations
TL;DR: This article investigated the differences in the behaviors between the speculative investors and the conservative investors in two separate experimental markets and found that the market for speculators shows greater price volatility in both bid/ask spread within a trade as well as with intraperiod variances.
Abstract: This study investigates the differences in the behaviors between the speculative investors and the conservative investors in two separate experimental markets. Although the market for speculators shows greater price volatility in both bid/ask spread within a trade as well as with intraperiod variances, it exhibits several desirable properties. Specifically, the price patterns tend to converge closer, and at a greater speed to either the prior information equilibrium price or the rational expectation equilibrium price. It also achieves better allocational efficiency. And, it is also less likely to be misled by potentially "false" price information.
49 citations
TL;DR: In this paper, the authors adopt a traditional definition of the subject, and focus primarily on the explanation of international transactions in goods, services, and assets, and on the main domestic effects of those transactions.
Abstract: This Handbook adopts a traditional definition of the subject, and focuses primarily on the explanation of international transactions in goods, services, and assets, and on the main domestic effects of those transactions. The first volume deals with the "real side" of international economics. It is concerned with the explanation of trade and factor flows, with their main effects on goods and factor prices, on the allocation of resources and income distribution and on economic welfare, and also with the effects on national policies designed explicitly to influence trade and factor flows. In other words, it deals chiefly with microeconomic issues and methods. The second volume deals with the "monetary side" of the subject. It is concerned with the balance of payments adjustment process under fixed exchange rates, with exchange rate determination under flexible exchange rates, and with the domestic ramifications of these phenomena. Accordingly, it deals mainly with economic issues, although microeconomic methods are frequently utilized, especially in work on expectations, asset markets, and exchange rate behavior.
46 citations
TL;DR: In a world with multiplicative production uncertainty and implicit labor contracts, this paper showed that the Rybczynski theorem retains its validity; therefore the quantity version of the Heckscher-Ohlin theorem survives as well.
Abstract: In a world with multiplicative production uncertainty and implicit labor contracts, we show that the Rybczynski theorem retains its validity; therefore the quantity version of the Heckscher-Ohlin theorem survives as well. We also show that the Stolper-Samuelson theorem may not hold. A small increase in the price of the capital-intensive good may benefit labor. We derive a strong version of the factor price equalization theorem that shows free trade tends to equalize sector-specific unemployment rates and sector-specific factor prices across countries. Finally, we relate trade patterns to international differences in the degree of risk aversion.
29 citations
TL;DR: In this article, the authors developed and employed an estimating procedure to measure the net effect of economic policies in providing incentives for domestic market production and sales, as reflected through observed price divergences.
17 citations
TL;DR: In this article, the authors analyse and estimate employment and investment functions derived from a model of an imperfectly competitive firm, with a putty-clay technology, in which both the level and the spatial allocation of factors of production are determined.
TL;DR: In this article, the authors consider the case where the home country is capital-abundant and has levied on optimal tax on earnings of its own capital operating abroad, and allow, for the first time, some inflow of foreign labour.
Abstract: In a succinct but classic article appearing in Economica in 1968, Ramaswami put forth an argument supporting the superiority of a policy that attracts foreign factors over a policy that allows a relatively abundant factor to emigrate. In each case the active home country is assumed to levy taxes on factor flows so as to capture for itself the discrepancy in return to the same factor at home and abroad. The asymmetry reflected by this policy ranking rests on a basic propeity of production functions-the convexity of technology-plus the ability of the active home country to hire (or rent out) factors at wages or rentals prevailing in the foreign country.' Briefly put, the Ramaswami argument proceeds as follows. Suppose the active home country is capital-abundant and has levied on optimal tax on earnings of its own capital operating abroad. Now consider repatriating this capital, and allowing, for the first time, some inflow of foreign labour. In particular, suppose the home country allows a level of immigration identical to the labour force previously employed with the home capital that is being repatriated. Such a transfer of (home) capital and (foreign) labour out of the foreign country leaves factor proportions abroad undisturbed, and thus does not alter the wage that must be paid to attract the requisite bundle of foreign workers. Although the home country thus avoids any increase in factor costs in foreign markets, it can increase output since the capital/labour ratiooriginally employed at home at high home wage rates is greater than the ratio in the freshly acquired bundle from abroad. By adopting a uniform capital/labour ratio over all factors now employed at home, output, and thus real income, rises. There may be even further gains to be had by allowing yet a different (optimal) level of immigration in the home country, which has now banned capital exports.2 Essential to the Ramaswami argument is the ability of the home country to extract a bundle of factors previously employed abroad without disturbing factor prices in that country. Indeed, Jones, Coelho and Easton (1983) have suggested that, in the context of the Ramaswami discussion, the original argument could be pursued to suggest that the home country gains not only from repatriating its own capital but from actually encouraging foreign capital to be employed at home. Such a capital flow is admittedly "uphill"-the home country would have to pay out more in rentals than such capital can earn at home. Despite this fact, such an import of capital and labour, in the same proportions found abroad, does not alter foreign factor prices but does, via the same Ramaswami-type argument on the convexity of the technology, result in gains at home. Although Ramaswami's own discussion starts with a repatriation of home capital previously invested abroad, his argument can be applied directly to the foreign autarky factor endowment bundle. If technology exhibits constant returns to scale, and if all (both) factors are indeed internationally
TL;DR: In this article, the integrated production-location problem is extended to include several types of business taxes, and the effects of taxes on output rates, input ratios, and plant location vary with the form of the tax imposed as well as the amount to be paid.
Abstract: Consideration of the integrated production-location problem is extended to include several types of business taxes. Many of these taxes are technologically and spatially neutral under certainty, but are shown to be nonneutral when factor prices are stochastic and the firm is risk averse, even when the tax is spatially uniform. Consequently, even a nationally uniform tax can have regional biases and can encourage migration of plants. When factor prices are uncertain, the effects of taxes on output rates, input ratios, and plant location vary with the form of the tax imposed as well as the amount to be paid. Income taxes involve the taxing authority in sharing the risk with the firm and are shown to promote risk taking by the firm and induce the expansion of output. Locational incentives which are mutually beneficial to firms and the government are presented.
TL;DR: In this paper, a bilateral factor intensity ranking for constant price industries by themselves cannot restrict possible factor price changes, and the gainers cannot be located at one end of the ranking.
TL;DR: In this paper, the authors consider how changes in nominal income are transmitted into price and output changes within a setting where the traditional assumption of instantaneous market clearing (costless coordination) is given up in favour of a more realistic setting where price decisions are made by numerous agents (firms) acting independently on their private (decentralized) information.
TL;DR: In this paper, the effect of price on consumers' perceptions of products has been studied and it was found that price variation was associated with changes in how people perceived a new product's function, perceptions that differed from the manufacturer's intended positioning for the product.
Abstract: Managers often do research to help them determine the optimum price for a new product. Several different price‐points are ordinarily tested in order to determine the impact of price on sales of the product. Aside from its impact on demand, price also has been studied for its effect on consumers' perceptions of products. For example, research has indicated that people use price as a cue for evaluating the quality of a complex product such as stereophonic equipment for the home. That is, price is used in lieu of knowledge of the technical aspects of the product. Research presented in this paper reveals a yet deeper aspect of price's effect on perception. In this case, variation in price was associated with changes in the way people perceived a new product's function, perceptions that differed from the manufacturer's intended positioning for the product.
TL;DR: In this paper, the authors provide theoretical grounds to relate asymmetries in cost structures and incentives towards price competition, showing that low cost firms favor price competition whereas the reserve is true for high cost firms.
TL;DR: In this paper, the authors extend the analysis of transport costs and delineate three possible paradoxes that may arise when the introduction or changes in transport costs affect the terms of trade.
Abstract: The theoretical and empirical role of transportation in international trade has received renewed attention in recent years.' Among the major contributions in this field Ronald Falvey's [6] model represents an important advance over the wastage or evaporation model in which transport costs are incurred in the form of sacrifices of traded goods.2 Falvey explicitly incorporates a resource-using transport sector in the standard two-good, twofactor model. Since the transport sector competes in the factor markets with other industries producing traded goods, the introduction of transportation or changes in transport costs will necessarily affect the factor prices, the prices of traded goods and the welfare of trading countries. The significance of Falvey's analysis lies in its drawing attention to the fact that when the terms of trade are held constant the transport producing country's welfare is not only affected directly through the increase in the domestic relative price of the importable but also indirectly through the shift in resources to the transport sector. The objective of this paper is to extend the analysis of transport costs and delineate three possible paradoxes that may arise when the introduction or changes in transport costs affect the terms of trade. In section II, the model we use for our analysis which heavily borrows from Falvey's model is outlined. Section III demonstrates the possibility that the improvement in the terms of trade for the transport producing country may more than offset the adverse welfare implications of a rise in the real (resource) cost of international transportation. It is also shown that such a paradox occurs if and only if the increase in transport costs reduces the domestic relative price of the importable commodity in the transport producing country. In section IV we derive the conditions under which the latter counterintuitive result, a Metzler-like paradox, may arise. We also show that while
TL;DR: In this paper, the authors consider the pricing decision of a monopolist firm having demand and costs exposed to nominal and real shocks which include both permanent and transitory changes and show that imperfect information implies nominal price smoothing where the price adjusts only partially relative to the past price by incorporating new information observed through price and quantity signals.
TL;DR: The continuing decline in world oil prices will not be halted in the short term, and prospects for the long run are not encouraging as mentioned in this paper, and there is a problem of unprecedented gravity in the surplus capacity of the oil industry.
Book•
01 Jun 1985
TL;DR: In this article, the authors consider ways of collecting price data in a Living Standard Survey (LSS) and provide a general overview of problems encountered in the construction of price indices over time and among different regions at a point in time.
Abstract: This paper considers ways of collecting price data in a Living Standard Survey Its objective is to comment on the efficiency of collecting price data through household surveys and to consider alternative methods for obtaining such information The paper provides a general overview of problems encountered in the construction of price indices over time and among different regions at a point in time and offers practical solution to them
TL;DR: In this article, the authors investigated the strength of concerns about depletion by calculating the price of oil in 1983 as it would have been in a competitive market and found that the competitive price had an 80% chance of lying between $3 and $11 (1983)/bbl, with an expected value of $7/bbl.
TL;DR: This article established a general preference for price uncertainty by the price-taking, risk-neutral, non-renewable resource extracting firm with convex extraction costs, and proved that the relevant value function for profits over an interval is convex in output price.
01 Jan 1985
TL;DR: In this paper, the relative importance of various factors affecting the housing price level in the Helsinki area in the 1970s and the early 1980s was examined, with some reservations, that demographic factors, particularly net migration, have been behind the major swings in the real price of housing.
Abstract: The paper examines the relative importance of various factors affecting the housing price level in the Helsinki area in the 1970s and the early 1980s. The demand for housing stock is modeled along the lines of simple consumer choice theory. The supply is taken exogenous in the short run. The empirical results suggest, with some reservations, that demographic factors, particularly net migration, have been behind the major swings in the real price of housing. Additionally, the availability of credit has been of importance in the short run. In the long run, new completed units have put downward pressure on the price level. In contrast with many other studies, income does not appear to be an important factor. This may, though, be more a result of data deficiency than the true state of affairs. In spite of the rather good performance of the model in explaining price developments in the 1970s, the model falls seriously short of accounting for the continued rise of the price level in 1982 and 1983. This underlin...
TL;DR: In this paper, the authors adapt the price uncertainty model to examine the implications of four types of marginal changes in price uncertainty: changes in commodity price level, the variance of price, a proportional change in both the mean and the standard deviation of price and an equiproportionate change in the moments.
Abstract: The authors adapt the price uncertainty model to examine the implications of four types of marginal changes in price uncertainty: changes in commodity price level, the variance of price, a proportional change in both the mean and the standard deviation of price, and an equiproportionate change in the moments. The analysis focuses on the effect of price uncertainty on sectoral capital/labor ratios, factor employment, output levels, factor rewards, and expected profits. The stability issue and its meaning for the determinant of the basic system is also discussed. 11 references.
TL;DR: In this paper, the authors focus on changes in the factor endowments and the effect of these changes on the economic and political problems due to the ensuing re-distribution of the national income and power.
Abstract: The modern, open economy must constantly re-allocate factors of production during the process of adjusting to external shocks. Few issues present us with greater economic and political problems due to the ensuing re-distribution of the national income and power. Terms of trade variations constitute a very important source of change, and the literature provides us with a number of recent contributions dealing with the issue of mobility after an exogenous shift in relative prices.' Less attention has been devoted to changes in the factor endowments.2 This is understandable since significant, one-time shifts in factor supplies are not as common as price shocks. Yet they do occur. Regime changes which lead to alterations in immigration policy or foreign investment policy may provoke sudden increases in labor or capital endowments. Foreign assistance may increase discontinuously, or technical change may occur rapidly, increasing the stock of effective capital in a onetime manner. Moreover, these endowment shocks may immediately affect one industry more heavily than the other. We know how the open economy must eventually adjust to such changes. The answer is given by the Rybczynski Theorem [15] in the event that both factors of production are completely mobile in the long run. One industry will expand and the other will contract. The industry which experiences growth will be the one that uses intensively the factor which has become more plentiful. In the new equilibrium, factor prices and factor ratios are unchanged from their original values, and the growing industry has received some of both factors from the other sector in addition to all of the initial inflow.
TL;DR: In this paper, the exact conditions to have negative shadow factor prices were derived, and it was shown that negative shadow factors are consistent with the stability of factor markets in a two-factor, two-commodity model of production.
TL;DR: In this article, the authors study the effect of price discontinuities on the relative values of Hotelling rents across time periods and show that price discontinuity can have significant impacts on the time patterns of resource extraction.
TL;DR: Gardner et al. as mentioned in this paper showed that there can be a supply response to price variability even in the absence of non-neutral risk attitudes, and that this response is a result of risk aversion when analyzing policy effects on market equilibia.
Abstract: As has been his habit in previous work, Bruce Gardner gives us in this paper a very clear picture of an issue along with a foundation for further analysis. The modeling is clear and simple enough to follow easily and yet rich enough to substantiate his main points, at least in a static framework. I believe that this paper will provide those of us who are interested in policy and risk analysis much food for thought and further work. The main lesson in this paper, as I see it, is that there can be a supply response to price variability even in the absence of non-neutral risk attitudes. Consequently, we need to be aware of this additional supply shifter as well as the supply shifter demonstrated by Baron and others to be a result of risk aversion when we analyze policy effects on market equilibia as well as when we attempt to assess risk attitudes using market data. This is a point well made and I think it will be a real contribution to the efforts in these areas of analysis. I would like to encourage Bruce to build on the static foundation laid out in this paper by placing it in a simple dynamic setting. If we look at market response to stabilization over time, I think at least two further complications would emerge. First, in looking at price support policy over time, we would have to consider the eventual disposition of the commodity stocks held by the stabilization authority. This disposition would have some effect on the price distribution as well. In the simplest case, where stocks are sold out of storage when the market price reaches some target level, there may be some truncation of the upper tail of the producerperceived distribution as well as truncation of the lower tail through the buying-up of output.