Showing papers on "Factor price published in 1989"

Chapter 10 Price discrimination

Abstract: 4. Summary As we indicated at the beginning of this chapter, price discrimination is a ubiquitous phenomenon. Nearly all firms with market power attempt to engage in some type of price discrimination. Thus, the analysis of the forms that price discrimination can take and the effects of price discrimination on economic welfare are a very important aspect of the study of industrial organization. In this survey we have seen some of the insights offered by the economic theory of price discrimination. However, much work remains to be done. For example, the study of marketing behavior at the retail level is still in its infancy. Retail firms use a variety of marketing devices — sales, coupons, matching offers, price promotions, and so on — that apparently enhance sales. The marketing literature has examined individual firm choices of such promotional tools. But what is the ultimate effect of such promotions on the structure and performance of market equilibrium? What kinds of marketing devices serve to enhance economic welfare and what kinds represent deadweight loss? One particularly interesting set of questions in this area that has received little attention concerns the computational costs involved in using complex forms of price discrimination. In the post-deregulation airline industry of the United States, airlines have taken to using very involved pricing schemes. Finding the most inexpensive feasible fight may involve a considerable expenditure of time and effort. What are the welfare consequences of this sort of price discrimination? Do firms appropriately take into account the computational externality imposed on their customers? Even in more prosaic case of public utilities, pricing schedules have become so complex that households often make the “wrong” choice of telephone service or electricity use. Questions of simplicity and ease-of-use have not hitherto played a role in the positive and normative analysis of price discrimination. Perhaps this will serve as a fruitful area of investigation in future studies of price discrimination.

Price Wars Caused by Switching Costs

Abstract: In many markets consumers have "switching costs", for example learning costs or transaction costs, of changing between functionally equivalent brands of a product, or of using any brand for the first time. We analyse a four-period complete-information model of a market with switching costs in which new entry occurs after the second period. The new entry results, in equilibrium, in a price war. That is, the new entrants' prices are higher in the post-entry period than in the entry period, and the incumbent's price falls in either the pre-entry period or the entry period and subsequently rises. We can interpret the incumbent's lowering its price in the pre-entry period as limit-pricing behaviour. We distinguish between two types of price war that can occur, and show how the type or mixture of types that arises depends on the size of switching costs.

The theory of food price stabilisation

Abstract: a small and very volatile fraction of total domestic food production. Many countries aim at food self-sufficiency, with the consequence that the country may be an exporter in good years, but an importer in bad years. International and domestic transport and handling costs are a significant fraction of the average price of cereals, so the domestic price fluctuations will tend to be an amplified version of international price fluctuations - the difference between the domestic price in exporting and importing years will be twice the transport costs if the world price is unchanged. It would require a strong negative correlation between domestic and world supply to offset this additional source of instability.1

Incorporating Consumer Price Expectations in Diffusion Models

Abstract: In this paper the sensitivity of the optimal price path of a new durable product to the price expectations of consumers is examined. Consumers enter the market every period in a diffusion type framework. During the initial periods more consumers enter the market due to word of mouth influence, but in the latter periods saturation effects set in. The entering set of cohorts form expectations about future prices; and in a stable equilibrium, these expectations are fulfilled. It is shown that the price path is cyclical with the following properties: at the beginning of the cycle, the price is at its highest level; it falls monotonically over time reaching a low price at the end of the cycle equal to the reservation price of the consumers willing to pay less; the cycle lengths are not equal. The sensitivity of the optimal price path to model parameters is explored through a numerical procedure.

The Tendency towards Factor Price Equalization among OECD Countries

Abstract: The authors conduct tests to gain insight into the empirical relevance of the proposition that factor prices converge as trade expands. The test results support the proposition of factor price convergence in sixteen OECD countries during the 1961-84 period. Regression analyses support the view that trade openness has been the most significant factor influencing wage variations. This paper also distinguishes between "high wage" and "low wage" countries. Pooled ordinary least squares estimates indicate that Canada, the United States, Denmark, West Germany, the Netherlands, and Sweden are "high wage" and Japan, New Zealand, Austria, Belgium, Finland, France, Ireland, Norway, Switzerland, and the United Kingdom are "low wage" countries. Further results using the Within estimations technique are provided. Copyright 1989 by MIT Press.

Price reaction functions and conjectural variations

Abstract: Price conjectural variations are estimated to measure the degree of price competition in a product differentiated oligopoly. The empirical model is a simultaneous equation system of product demand and price reaction functions. Own and cross price demand elasticities are estimated in conjunction with the price conjectural variations and price reaction function elasticities. The conjectural variations are estimated for pairs of ready-to-eat breakfast cereal products using brand price and quantity data. The empirical results reject competitive brand pricing behavior in favor of independent or collusive pricing. Further, the hypothesis of a unique consistent conjecture is rejected.

Price variation in spatial markets: the case of perfectly inelastic demand

Abstract: This paper analyzes short-run price variation in one-dimensional (i.e., circular, linear) spatial markets where both producers and consumers are numerous. Price reaction functions are established for firms under symmetrical price conjectures. For perfectly inelastic consumer demand each firm's equilibrium price is shown to depend upon distance-decay effects in both firms' locations and marginal costs. The rate of distance decay in these effects is inversely related to the degree of price conjectural variation in the market. Boundary effects in spatial markets are also shown to influence these distance-decay rates and, thus, patterns of firms' equilibrium prices.

Flanking in a Price War

Abstract: This study tested the notion that stock-up grocery goods would have a different pattern of price sensitivity than nonstock-up goods. We used covariance design within a Bayesian decision framework to select the optimum price treatment strategy as well as the dollar risk associated with this strategy. The Bayesian decision framework also provided an optimal stopping rule for the experiment. The test results were successfully employed in a real-life retail grocery setting when an anticipated price war occurred. A small grocery chain, rather than responding in kind to competitive price cuts, implemented a precise, profit-preserving counterattack. As a result, the chain increased market share substantially, at the cost of only 1.2 percent of its gross margin, during the price war.

Customer Markets and Price Sensitivity

Abstract: This paper investigates the behavior of prices in customer markets of the Phelps-Winter type under uncertainty. It is shown that the responsiveness of prices to short-run demand and cost changes depends crucially on whether the marginal customer is price risk averse or price risk loving. If he is price risk averse (loving), then the customer market price is less (more) flexible than the monopoly price. Competition makes the customer market price more rigid (flexible) if the marginal customer is price risk averse (loving). The scope of rigid customer market prices is wide if near-rational behavior of customers and the adjustment cost in the consumption process are taken into consideration. Copyright 1989 by The London School of Economics and Political Science.

Dairy supply and factor demand response to output price risk: an econometric assessment

Abstract: The model of production decision making for the expected utility maximizing firm under output price uncertainty is applied to a panel Pennsylvania dairy operators. The model generalized duality implemented in this paper has the advantage of generating a system of supply and variable factor demand functions that consistently account for the presence of output price risk. The application to Pennsylvania dairy operators indicates that output price risk measured by the second and third moments of individual operators' historical output price series is not an important factor in production decision making. In addition to not maximizing expected utility, these operators are not expected profit maximizers.

Chapter 4 - The Switch to Sharecropping in Medjez-el-bab*

Abstract: Publisher Summary This chapter presents certain case studies that explain the contractual choice in a region of Tunisia—Medjez-el-bab—where there has been a discernible switch from wage- and fixed-rent contracts to share contracts, which have become much more prevalent in the region in recent years. The economies of scope in supervision, the proximity of owners to the farms, the emigration of supervisory labor, changing cropping patterns, and trends in relative factor prices all contribute to the explanation for the switch from wage and rent contracts to share contracts. The chapter discusses the observed trend toward share contracts and describes the validity of various transaction cost elements of contractual choice.

The demand for energy by u.k. manufacturing industry

Abstract: Using an intertemporal maximizing model incorporating the costs of adjustment of the capital stock, demand elasticities for aggregate energy input and for individual fuel inputs are derived for the U.K. manufacturing industry for the postwar period. The results confirm the price sensitivity of energy subtypes and aggregate energy. In the long run, the demand for gas and petroleum appear to be significantly price elastic. The results also suggest that the full effects of the 1978-79 energy price shock have yet to be felt. Copyright 1989 by Blackwell Publishers Ltd and The Victoria University of Manchester

Costing and pricing

Abstract: If you ask most people about cost and price they believe they understand exactly what is meant. Cost is what you pay for an item and price is what the seller asks — and for most buyers the transactions are the same. However, cost and price are different to different players in a transaction. There is the cost of creating, developing, producing, marketing, supporting, distributing, storing, and selling an item. There is the retail or list, wholesale, sale, or discounted price at which the item is sold and which the purchaser pays. It sounds simple, but in reality it is a complex process involving a high degree of subjective judgment.

Price Leadership with Incomplete Information

Abstract: The dominant firm is a price searcher for the market. As such, it is in the position of providing a public good for fringe suppliers. This public good consists in the price setter's search for the best price. This paper presents a model of the dominant firm's behavior in acquiring information about demand where such information is costly. The results accord with intuition. For example, the larger the market share of the dominant firm, the more information it acquires.

Payroll taxes, capital grants and Irish unemployment

Abstract: This paper explores the role of factor prices in macroeconomic models which embody the frequently-encountered Classical, Keynesian, and Structuralist perspectives on the caused of Irish unemployment. It is argued that within each framework a strong case can be made for at least partial repleacement of the current IDA capital-grants scheme by a policy of payroll-tax reductions for newly-created jobs. Various objections to this type of proposal have been raised in the literature, and these are dealt with here on a point-by-point basis. A range of estimates is given for the likely employment effects and exchequer costs of the proposed policy.

Producers' markets: A model of oligopoly with sales costs

Abstract: A producers' market is one in which individual producers set prices and incur most transaction costs, as they engage in sales promotion or marketing activities. 1 show that non-collusive profit-maximizing behavior leads to the emergence of the lowest marginal-cost producer as the ‘price leader’ (but not as a monopolist) in a simple producers' market for a homogeneous good. The comparative statics of the simple model (which allows no price discrimination or buyer tradeoff between sales promotion and price) suggest that the prevailing price will not be very responsive to demand shocks, or to cost shocks that do not directly affect the price leader, but will respond via a roughly proportional mark-up to the price leader's costs. On the other hand, marketing costs and profits respond almost proportionately to demand shocks.

Capital Labor Substitution in Municipal Government

Abstract: City governments utilize both capital and labor to produce the services that the public demands. This article synthesizes the public choice literature and the theory of dynamic factor demands developed for private firms. The problem encountered in analyses of the public sector of no direct measures of output is bypassed through the use of a public choice function. The short- and long-run elasticities of substitution are estimated for large city governments using data for 46 separate cities over the period 1954 to 1986. The empirical estimates indicate that in both the short and long run, large city governments are responsive to factor price changes. The production technology is not neutral with respect to the scale determining variables contained in the public choice model.

Chinese experience in the introduction of a market mechanism into a planned economy: the role of pricing

Abstract: . A brief review is first presented of the changes in pricing institutions in China since 1949, with particular emphasis on the shift from an equilibrium price system to a distorted price system. The authors argue that distorted prices are harmful to economic growth even in a planned economy, since even an experienced economic planner can never escape from the full implications of a distorted price system. Examples are given showing the detrimental results of such a system. The central point of China's economic reform is the extension of decision-making power to enterprises and the introduction of a market mechanism so as to improve microeconomic efficiency. But such a goal cannot easily be achieved due to the false information provided by the distorted price system. So price adjustment becomes an issue of primary importance, and the authors discuss the difficulties for price adjustment posed by various interest groups.

Industrialization and Employment in Developing Countries: A Comparative Study

Abstract: 1 Introduction 2 Statistical Overview 3 Factor Price Behaviour 4 Survey of Studies on Demand for Labour 5 The Models, Estimation Issues and the Data 6 Demand for Production Workers: Time-series Evidence 7 Demand for Production Workers: Pooled Time-series, Cross-section Evidence 8 Interrelated Demand Functions: Pooled Time-series, Cross-section Evidence 9 Cost of Factor Price Distortions 10 Policy Implications 11 Conclusion

When, How, and Why Suppliers Consider Price Moves

Abstract: When, How, and Why Suppliers Consider Price Moves An understanding of the internal and external pressures faced by a seller as he or she prepares for the negotiation process will help the purchasing executive save time in terms of data collection, analysis, and preparation Buyers must rely heavily on the availability of accurate information and the determination of the seller's position of strength This person needs an understanding of the tools and concepts used by the seller in preparing for negotiation, along with an understanding of what drives the selling executive to make certain decisions An overview of these tools and concepts is presented in this article and should facilitate and improve a buyer's analysis of costs and prices In preparation for a purchase negotiation, purchasing professionals need to have an understanding of both the tools used and the internal and external pressure faced by a seller in arriving at a price that is fair to both the buyer and the seller This article explores some of the more important tools used by the seller, with special emphasis on cost-price analysis In addition, it explores the costs, opportunities, and potential pitfalls associated with the seller's new product development process, pricing across the product life cycle, and the seller's learning curve concept Finally, an attempt is made to gain insight into additional internal and external pressures facing the seller as important price decisions are made COST-PRICE ANALYSIS Cost-price analysis is an activity that is vital to the buying process in general and the negotiation process in particular It involves the analysis of all the factors that enter into a vendor's price and the attempt by the buyer to ensure that the final price is reasonable in terms of the use to which the purchased material, subassembly, part or service is to be put The overall objective of price determination through cost-price analysis is not necessarily to get the lowest price, but to obtain the lowest overall fair price in light of the current competitive situation From a philosophical point of view, sellers have the privilege of naming the prices at which they are willing to sell their products From an economic standpoint, that decision depends on how many buyers can be found who are willing to pay the prices Otherwise, there is no market Although, in theory, sellers are under no compulsion to sell, or buyers to buy, at any given price level, actually that compulsion exists if business is to be done Markets and prices are not made by quotations or offers but by actual transactions[1] What is the so-called "proper price"? If several purchasing executives were asked that question, all would probably answer it differently Most would be saying the same thing in all probability, just using different words Purchasing professionals know the significance of the price and cost of materials to their organization, and they realize that while economic variables do indeed influence price determination, the actual final price is a product of both economic and noneconomic influences Some of these other influences will now be examined, hoping that by doing so buyers can become even more aware of some of the factors involved in the setting of prices by the industrial supplier THE SELLER'S NEW PRODUCT DEVELOPMENT PROCESS The seller's product development process is characterized by a number of steps or stages at which all aspects of the new project are reviewed--and certain decisions made The key decision is whether the new product idea should be abandoned, put on the shelf, or continued into full scale production and market introduction This process is depicted in Figure 1 The technical and economic aspects of each of these check points become increasingly more detailed and thorough because larger and larger amounts of company resources must be committed by decisions to continue the process …

The labor market and economic stabilization in Zambia

Abstract: This report examines trends in the Zambian labor market over the period since independence. It focuses particularly on two phenomena - skill shortages and wage rigidities - which have made it more difficult for the economy to recover from the fall in price of its main export commodity : copper, in the mid 1970s. Real wages did fall somewhat over the following decade, but insufficiently so to promote economic diversification and recovery. The rigidities also help to explain the failure of more recent stabilization efforts, including the IMF program of 1985 - 1987.

The impact of labor costs on manufactured exports in developing countries : an econometric analysis

Abstract: This paper estimates export supply elasticities in 20 countries using an empirical model in which manufactured exports are a function of the price of exports, the price of imported inputs, and labor costs relative to the price of home goods The export supply equation is completed with a variable identifying manufacturing capacity and a variable associated with the role of internal absorption After testing for simultaneity, the paper concludes that half of the countries must be treated as large countries - thus estimating the export supply function through two-stage least squares Also explored are other sources of endogeneity of right-hand side variables - the price of imported inputs, labor costs, and manufacturing capacity It is found that in many cases the estimates change significantly as a result of this procedure In general, the conclusions underscore the impact on exports of domestic economic policies - for example, promoting investment and productive capacity and keeping factor markets free of significant distortions

Factor Prices and the Shape of Average Cost Curves with Special References To International Trade

Abstract: This paper shows that the shapes of average cost and marginal cost curves and the possibility of scale economies can be quite sensitive to factor price configuration. We illustrate our analysis in terms of "international competitiveness." Since the days of Frank Knight (1921) and Jacob Viner (1931), microeconomic analysis in terms of the usual U-shaped average cost curve and the marginal cost curve (which passes through the minimum point of the AC curve) has become a com mon intellectual tool of economists, and the analysis in terms of these devices has pro duced a bulk of interesting and fruitful results. Today, students in economics learn this apparatus early and virtually all intermediate price theory textbooks contain a discus sion of such cost curves and their applications. Needless to say, it is well-known that the shape of the AC curve is not necessarily U-shaped. For example, any homogeneous production function does not yield U-shaped AC curve (under any factor price configurations).1 It is also well-known that the shape of the average and the marginal cost curves depend on factor prices as well as output, and hence any change in factor prices would shift these curves. On the other hand, it is not well-recognized that a slight change in factor prices can result in a drastic change in the AC rather than a simple shift. In this paper, we intend to show, by way of simple

A Competitive Equilibrium Model of the Market for Used Goods

Abstract: The present paper determines the equilibrium price function of used goods and their carry-over age when there are heterogeneous firms with different factor prices. It is shown that the used good market enables more efficient use of durable goods and thereby gains from trades. It is also shown that firms with a lower interest rate and a higher wage rate specialize in using newer goods.

Welfare implications of price regulation: a general equilibrium analysis

Abstract: This paper analyzes the welfare implications of price regulation in competitive market structures. The analysis is performed in a general equilibrium framework where individuals are producers of the goods they consume. These produced goods in the economy are designated as good A, good B, and q, which represents quality per unit of A. The first half of the paper is devoted to the competitive equilibrium and the effects of price regulation on product quality. The second half of the paper analyzes the welfare effects of price regulation when the economy consists of both non‐identical and identical consumers. It is shown that regulation may be a Pareto superior move in the absence of a market and price for quality.

Price adjustment in a two-country model

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