Showing papers on "Factor price published in 1991"
TL;DR: In this article, the effects of an expansion of tourism on welfare, output, and factor prices in the host country using a general equilibrium international trade model were investigated, and conditions under which an increase in tourism can lead to deindustrialization were discussed.
Abstract: This paper investigates the effects of an expansion of tourism on welfare, output, and factor prices in the host country using a general equilibrium international trade model. In the absence of taxes, foreign ownership, and distortions, an increase in foreign visitors will increase welfare only if the price of nontradables increases. Factor mobility and foreign ownership tend to reduce the gains from tourism, while commodity taxes tend to increase them. Conditions under which an increase in tourism can lead to deindustrialization are also discussed. Copyright 1991 by The London School of Economics and Political Science.
369 citations
TL;DR: In this paper, the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using micro-data on gasoline retailing and a test that discriminates between price structures associated with discrimination and with cost-driven, competitive differentials is developed and implemented with controls for variation in outlet and market characteristics.
Abstract: The hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing. A test that discriminates between price structures associated with discrimination and with cost-driven, competitive differentials is developed and implemented with controls for variation in outlet and market characteristics. A second test based on profitability variation rejects a competitive, peak-load pricing explanation for the observed price dispersion. The data suggest that price discrimination at the retail level adds at least 9¢ a gallon to the average price of full-service gasoline.
272 citations
TL;DR: The empirical evidence suggests that, in most cases, the law of one price cannot be rejected asa maintained hypothesis as mentioned in this paper. And for the remaining cases transaction costs seem to cause the failure.
Abstract: International trade models often postulate the existence of a representative price, i.e., the price which prevails at all markets. This is known as the "Law of One Price." In this paper, the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs. The empirical evidence suggests that, in most cases, the law of one price cannot be rejected asa maintained hypothesis. Furthermore, for the remaining cases transaction costs seem to cause the failure.
203 citations
TL;DR: In this paper, a model of irreversible investment in a competitive industry under demand uncertainty is developed, where investment by itself will keep the price from rising above a natural ceiling that exceeds the long-run average cost by an option value factor.
Abstract: A model of irreversible investment in a competitive industry under demand uncertainty is developed. In the absence of restrictions, investment by itself will keep the price from rising above a natural ceiling that exceeds the long-run average cost by an option value factor. When a lower ceiling is imposed, investment is triggered only by the observation of an even higher "shadow" price. As the imposed ceiling is reduced to the long-run average cost, this shadow price goes to infinity and investment ceases completely. Because investment is depressed, a tighter price ceiling generally leads to a higher long-run average price.
162 citations
TL;DR: In this article, the authors examined the effect of price discrimination on the average revenue of a monopolist whose "average price" is capped by regulation, and the consequences of tightening the price cap when discrimination is allowed.
Abstract: Should a multiproduct monopolist whose "average price" is capped by regulation be allowed to engage in (third-degree) price discrimination? If the cap applies to a price index with weights proportional to demands at uniform prices, then price discrimination benefits consumers as well as the firm. But if -- perhaps more realistically -- it is the firm's average revenue that is capped, then consumers prefer uniform pricing. In this case total output is higher when discrimination is allowed, which increases welfare, but marginal utilities differ across markets, which is inefficient, and the overall effect is ambiguous. A small amount of discrimination is desirable, however. It is better not to allow price discrimination if the price cap is close to the level of marginal cost. The consequences of tightening the price cap when discrimination is allowed are also examined.
84 citations
TL;DR: In this article, the authors suggest that if customers react slowly to price changes and credit markets are imperfect, prices may be unchanged or even fall when demand increases, and that firms can compete more intensely for customers without increasing their borrowing.
Abstract: According to standard theory, an increase in demand should raise prices of goods, given factor prices. Empirically, however, prices appear to be unaffected by short-run variations in demand. This paper suggests an explanation of this observation. If customers react slowly to price changes and credit markets are imperfect, prices may be unchanged or even fall when demand increases. The reason is that when demand is high, profits are high, and firms can compete more intensely for customers without increasing their borrowing. Copyright 1991 by The London School of Economics and Political Science.
73 citations
TL;DR: In this article, plausible cost-based explanations exist for what are commonly perceived to be cases of price discrimination, such as the price spreads of retail gasoline products, the "high" price of dinners at restaurants, the “high” price of popcorn at movie theaters, and the fact that airline ticket prices vary with how long the ticket is purchased before the flight's departure.
Abstract: This paper demonstrates that plausible cost-based explanations exist for what are commonly perceived to be cases of price discrimination. We explain such commonly discussed problems as the price spreads of retail gasoline products, the “high” price of dinners at restaurants, the “high” price of popcorn at movie theaters, and the fact that airline ticket prices vary with how long the ticket is purchased before the flight's departure. Our explanations benefit from not relying on consumer ignorance or implicit collusion among numerous sellers.
72 citations
TL;DR: In this article, the authors explain price discrimination by consumer rationing and show that if some consumers who have a low valuation for a good are served first at low prices, high valuation consumers buy at a high price although they rationally foresee future price drops.
39 citations
TL;DR: In this paper, a theoretical discussion confirms that the anticipation of future price increases dampens the current rate of demand increases and implies demand reductions prior to the actual price increase, and the empirical application (transport sector) indicates that expectations (of another price increase in the future) may explain only a small fraction of the observed asymmetrical demand behaviour.
35 citations
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TL;DR: In this paper, the authors consider an oligopolistic market with a given finite number of price setting firms and study the dependence of the market share of a firm on its own price and give conditions on the distribution of consumers' characteristics.
Abstract: We consider an oligopolistic market with a given finite number of price setting firms. We study the dependence of the market share of a firm on its own price and give conditions on the distribution of consumers' characteristics such that the profit of a firm becomes a quasiconcave function of its price.
33 citations
01 Jan 1991
TL;DR: In this paper, the authors present a short run model of price competition for markets defined as networks (node-linkage associations) under perfectly inelastic consumer demand, and show an inverse relationship between firms' equilibrium price schedules and the number of directly connected rival firms.
Abstract: This paper presents a short-run model of price competition for markets defined as networks (node-linkage associations) under perfectly inelastic consumer demand Analytical and simulation analyses show an inverse relationship between firms' equilibrium price schedules and the number of directly connected rival firms As the degree of network connectivity increases, holding the size of the overall market constant, average equilibrium mill prices tend to decrease at a decreasing rate This implies that the intensity of competition in a network increases as the network becomes more fully connected, and equilibrium price levels converge at some theoretical minimum that is specific to the prevailing market conditions Price-connectivity relations are shown to be highly sensitive to network structure and the distribution of price conjectural parameters In addition, the paper briefly discusses the welfare implications of price reductions from an accessible and cost-efficient firm in a network
TL;DR: In a theoretical model, the share of intra-industry trade in an industry's bilateral trade flows is determined by relative factor prices in the trading countries, factor intensity, and the elasticity of substitution in demand between products in the industry as discussed by the authors.
Abstract: In a theoretical model, the share of intra-industry trade in an industry's bilateral trade flows (IIT) is determined by relative factor prices in the trading countries, factor intensity, and the elasticity of substitution in demand between products in the industry The more similar the relative factor prices in different countries, the less "extreme" the factor intensity, while the lower the elasticity of substitution between the products in an industry, the larger the IIT The empirical study confirms these implications Furthermore, tariffs and transport costs are shown to have a greater negative effect on intra-industry trade than on inter-industry trade Copyright 1991 by The editors of the Scandinavian Journal of Economics
TL;DR: This paper showed that omitting individual prices introduces measurement errors in real output that are correlated with factor prices and these errors lead to biased estimates of the production function and productivity growth equations, and a method of simultaneously estimating real output and price is introduced to overcome these problems.
Abstract: For many years, economists have successfully analyzed aggregate production data using the single price assumption to construct real output However, economists using these same techniques to examine firm and establishment level data have had difficulty interpreting the ensuing results This paper explores whether price dispersion across individual producers could explain these problems Using data from the hydraulic cement industry, this paper shows that omitting individual prices introduces measurement errors in real output that are correlated with factor prices These errors lead to biased estimates of the production function and productivity growth equations A method of simultaneously estimating real output and price is introduced to overcome these problems
TL;DR: In this article, the authors argue that focusing on short-run income distribution effects of tariffs within a specific factors model provides a much better rationale for the calculation of effective rates of protection than does the traditional focus on long-run resource reallocation.
TL;DR: In this article, the authors examined the relationship between market form and price adjustment patterns by using disaggregated price data for Mexico over the 1940-1984 period and found that the frequency of price adjustment and characteristics of goods and industries appear to be related, as predicted by menu cost and customer market models.
TL;DR: In this paper, the social returns from research in the presence of the price policies considered by Oehmke are reexamined using a simple geometric approach, and the analysis suggests that an output subsidy in a small importing economy, a closed economy, and a target price in a large exporting economy will cause only small reductions in the internal rate of return from investment in research.
TL;DR: In this article, the process of producers' expected price formation through the estimation of supply functions, using vegetables and green tea in Japan as an example, was analyzed, and it was found that producers' price expectations were closer to the rational expectations in the case of Chinese cabbage, lettuce and green beans, whose supply curves showed high price elasticities.
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01 Dec 1991
TL;DR: In this paper, the authors review the experience of price reform in China, as well as selected East European countries, and show that cycles of progressively more severe macro-instability can significantly reduce the degrees of freedom available to the authorities, undermine gradual reform attempts and substantially raise the costs of the eventual adjustment.
Abstract: This paper reviews the experience of price reform in China, as well as selected East European countries. Price reform is an essential element of any program that seeks to achieve sustained and rapid economic growth in China via improvements in factor productivity. For price liberalization to generate sustainable growth, reform must occur within a framework that takes into account the interdependencies between the real sector and financial and institutional elements of the economy. The experience of Eastern Europe suggests that cycles of progressively more severe macro-instability can significantly reduce the degrees of freedom available to the authorities, undermine gradual reform attempts and substantially raise the costs of the eventual adjustment. Policy makers in China have demonstrated that they can successfully fashion a national consensus to control inflation. A similar understanding of the need for fiscal and monetary restraint must underpin any program of economic reforms. As China proceeds with price reform, complementary pricing actions will be required so as to maximize the allocative gains. The eventual goal of price reform should be to achieve full price liberalization. Side by side with the liberalization of domestic prices exchange rate adjustment and reform of the trade regime allows for a closer link between domestic relative prices and international relative prices. China has already taken steps to unify the exchange rate and promote trade.
TL;DR: In this article, the authors studied intertemporal monopolistic pricing strategies when demand is dynamic and when price volatility may harm other producer objectives, e.g. the political good will for an international cartel.
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TL;DR: In this article, the authors focus on a separate, more theoretical issue: what is the impact of widespread dumping and use of antidumping (AD) duties on the exporting and importing economies?
Abstract: Dumping accurs when a firm charges a price in the foreign market below its price in the domestic market when it supplies the indentical good to both markets. Provisions within the GATT allow member countries to impose antidumping (AD) duties to counteract this behavior and return the price of the dumped goods to its"fair value". The increasing incidence of dumping allegations and imposition of AD duties indicate the dumping of exports in foreign markets is a growing concern in international trade and policy discussions. The other studies of this volume have presented in quite impressive detail the evolution and present ubiquity of AD investigations and duties in import-competing countries, and have also addressed the issue of whether these trends truly indicate a rise in dumping activity. In this paper the authors focus on a separate, more theoretical issue: what is the impact of widespread dumping and use of AD duties on the exporting and importing economies?
TL;DR: In this article, the authors investigated the effects of factor price stabilization on production decisions of a competitive firm with ex post production flexibility, through changes in the guaranteed minimum price and the imposed maximum price, and found that the effect of price stabilization, through a mean-preserving contraction, on capital crucially depends on whether capital and the variable input are substitutes or complements.
Abstract: This paper investigates the effects of factor price stabilization on production decisions of the competitive firm with ex post production flexibility. Factor price stabilization is achieved through changes in the guaranteed minimum price and the imposed maximum price. For the risk-averse firm, the effect of factor price stabilization, through a mean-preserving contraction, on capital crucially depends on whether capital and the variable input are substitutes or complements as well as the observable characteristics of the variable input demand curve.
TL;DR: In this article, the share of intraindustry trade in an industry's bilateral trade flows is determined by relative factor prices in the trading countries, factor intensity, and the elasticity of substitution in demand between products in the industry.
Abstract: In a theoretical model, the share of intraindustry trade in an industry's bilateral trade flows is determined by relative factor prices in the trading countries, factor intensity, and the elasticity of substitution in demand between products in the industry. The more similar the relative factor prices in different countries, the less "extreme" the factor intensity, while the lower the elasticity of substitution between the products in an industry, the larger the intraindustry trade. The empirical study confirms these implications. Furthermore, tariffs and transport costs are shown to have a greater negative effect on intraindustry trade. Copyright 1991 by The editors of the Scandinavian Journal of Economics.
TL;DR: In this paper, the authors provide an explanation for the fact that factor prices have not converged as expected as capital markets have become integrated: non-specific output risks are borne by capital, making international portfolio diversification a dominant strategy.
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TL;DR: In this article, the impact of a structural change in the process of the explanatory variables on the factor demand decision rules is analyzed, and the nonstationarity of factor demand series can be accounted for by that of relative factor prices when demand and price series are cointegrated.
Abstract: This paper is concerned with dynamic factor demand systems. First, for the intertemporal expected profit maximization problem gi- ven quadratic adjustment costs, it is shown that interrelations between factor inputs result from specific characteristics of the innovations in the technology - not from substitution or adjustment costs trade-off possibilities. Second, in line with the Lucas critique, the impact of a structural change in the process of the explanatory variables on the factor demand decision rules is analyzed. Third, the non-stationarity of the factor demand series can be accounted for by that of relative factor prices when demand and price series are cointegrated. The model which allows for structural changes in the processes of the explanatory variables and for cointegration is applied to quarterly data for manufacturing in the Netherlands for the period 1971.1 - 1984. IV.
01 Jan 1991
TL;DR: For many years it has been a matter of subtle debate whether the CMEA was ever conceived as an organization designed to bring about genuine economic union among its members as mentioned in this paper, regardless of the concern about safeguarding socialism, the conceptualization and implementation of reciprocal adjustments within the union, whether planned or induced by market forces, would have been basically linked through the umbilical cord of the economic calculus.
Abstract: For many years it has been a matter of subtle debate whether the CMEA was ever conceived as an organization designed to bring about genuine economic union among its members. Genuine in this context means that the principal motivations for bundling forces within the region found their justification in the gains that can be reaped from narrowing relative scarcities across a larger market than the national one. In other words, regardless of the concern about safeguarding socialism, the conceptualization and implementation of reciprocal adjustments within the union (whether planned or induced by market forces) in response to differences in relative prices would have been basically linked through the umbilical cord of the economic calculus. Prices in this context refer to all terms at which alternatives are or could be traded. As such they include product and service prices (in retail as well as wholesale relations) and factor prices (wages, rents, and interest rates), all possibly directly codetermined by price relatives in world markets for traded goods.
TL;DR: In this article, the impact of a structural change in the process of the explanatory variables on the factor demand decision rules is analyzed and the non-stationarity of factor demand series can be accounted for by that of relative factor prices when demand and price series are cointegrated.
Abstract: This paper is concerned with dynamic factor demand systems First, for the intertemporal expected profit maximization problem given quadratic adjustment costs, it is shown that interrelations between factor inputs result from specific characteristics of the innovations in the technology – not from substitution or adjustment costs trade-off possibilities Second, in line with the Lucas critique, the impact of a structural change in the process of the explanatory variables on the factor demand decision rules is analyzed Third, the non-stationarity of the factor demand series can be accounted for by that of relative factor prices when demand and price series are cointegrated The model which allows for structural changes in the processes of the explanatory variables and for cointegration is applied to quarterly data for manufacturing in the Netherlands for the period 19711 – 1984 IV
TL;DR: In this article, the authors consider an oligopolistic industry in which the firms produce perfect substitutes and incur transaction costs of changing price and derive its significance from its implications for the welfare costs of inflation.
Abstract: Consider an oligopolistic industry in which the firms produce perfect substitutes and incur transaction costs of changing price. Under constant inflation, there is an equilibrium in which the firms change their nominal prices at equally spaced time-points. Increasing the inflation rate increases the size of price changes, increases the frequency of price changes, and increases the average real price paid by buyers. The analysis derives its significance from its implications for the welfare costs of inflation: the inflation-induced distortions in relative prices are larger the more sticky nominal prices are; and are larger the greater the tendency for firms to stagger (rather than synchronize) their price changes.
TL;DR: In this paper, the possibilities for substitution of labour for other factors namely capital and materials in the modern small scale sector were analyzed, in the light of the notion that small enterprises face a lower labour cost in Telation to other factors like capital.
Abstract: This study analyses the possibilities for substitution of labour for other factors namely capital and materials in the modern small scale sector. This is in the light of the notion that small enterprises face a lower labour cost in Telation to other factors like capital. A study of metal products industries shows that they are not employment generators in the sense of substituting labour for other inputs. In other words, cheap labour does not guarantee more/increased employment. There is also a need for firms to have easy access to capital at cheaper interest rates. The result also imply a need for more meaningful policy relating industry-specific factor prices rather than a general one covering all industries.
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01 Jan 1991
TL;DR: The empirical relevance of the Heckscher-Ohlin "factor abundance" theorem of international trade has been the subject of many studies, beginning with the pioneering one of Leontief (1953), and as discussed by the authors demonstrate recent theoretical advances applying the factor content of trade to analyze existing relationships between factor prices and factor content as a means of testing the theorem empirically.
Abstract: The empirical relevance of the Heckscher-Ohlin "factor abundance" theorem of international trade has been the subject of many studies, beginning with the pioneering one of Leontief (1953). Accordingly, relative factor endowments should affect observed trade patterns. The principle purpose of this paper is to demonstrate recent theoretical advances applying the factor content of trade to analyze existing relationships between factor prices and factor content as a means of testing the theorem empirically. At the empirical level, however, it is found that the literature on this important subject still offers no generally accepted answer. This may not be as surprising as first glance suggests, given the rising importance of alternative determinants of trade flows other than factor abundancyl.
TL;DR: For example, this paper pointed out that price is determined by the law of supply and demand in the Western world, and the price mechanism in the Chinese economy is controlled by the government.
Abstract: That price is determined by the law of supply and demand has long been taken for granted in the Western world. The theory has been working well in explaining the phenomenon of price. However, is it also applicable in a socialist country such as China? Is the Chinese economy an exception to this law? What is the price mechanism in the country? These answers are unknown even to an ordinary person living in China. In the socialist China for many years, the price change has slipped people's notice. What people heard was the propaganda slogan: "Stabilize price, guarantee supply, and improve people's livelihood." People were used to accepting prices as they were; they did not bother to look at the price mechanism which is thickly veiled behind the propaganda slogan and controlled by the government. The importance of price in an economy is beyond question. But can it function without a guiding theory? Or is there a theory of which we are ignorant? If one does exist, what is it? How does it work, and does it work...