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Showing papers on "Factor price published in 2011"


Journal ArticleDOI
TL;DR: In this paper, the authors incorporate 15,588 households from the U.S. Consumer and Expenditure Survey data as individual agents in a comparative-static general equilibrium framework and provide detailed within-group distributional measures of burden impacts from various policy scenarios.

290 citations


Journal ArticleDOI
TL;DR: The results of a decomposition of healthcare spending along these lines in the United States and in Canada are presented and the organization of primary and chronic disease care is touched upon and possible gains in that area are discussed.
Abstract: This paper draws on international evidence on medical spending to examine what the United States can learn about making its healthcare system more efficient. We focus primarily on understanding contemporaneous differences in the level of spending, generally from the 2000s. Medical spending differs across countries either because the price of services differs (for example, a coronary bypass surgery operation may cost more in the United States than in other countries) or because people receive more services in some countries than in others (for example, more bypass surgery operations). Within the price category, there are two further issues: whether factors earn different returns across countries and whether more clinical or administrative personnel are required to deliver the same care in different countries. We first present the results of a decomposition of healthcare spending along these lines in the United States and in Canada. We then delve into each component in more detail—administrative costs, factor prices, and the provision of care received—bringing in a broader range of international evidence when possible. Finally, we touch upon the organization of primary and chronic disease care and discuss possible gains in that area.

162 citations


Journal ArticleDOI
TL;DR: In this article, the role of imperfect information in explaining price dispersion is investigated. But the authors focus on the U.S. retail gasoline industry, and propose a new test of temporal pricing to establish the importance of consumer search, and show that price rankings vary significantly over time.
Abstract: This paper studies the role of imperfect information in explaining price dispersion. We use a new panel dataset on the U.S. retail gasoline industry, and propose a new test of temporal price dispersion to establish the importance of consumer search. We show that price rankings vary significantly over time; however, they are more stable among stations at the same street intersection. We establish the equilibrium relationships between price dispersion and key variables from consumer search models. Price dispersion increases with the number of firms in the market, decreases with the production cost and increases with search costs.

142 citations


Journal ArticleDOI
TL;DR: The results show that revealing the usage of an adaptive mechanism yields higher profits and more transactions than not revealing this information, and it is found that applying a revealed adaptive threshold price can increase profits by over 20 percent without lowering customer satisfaction.
Abstract: The enhanced abilities of online retailers to learn about their customers' shopping behaviors have increased fears of dynamic pricing, a practice in which a seller sets prices based on the estimated buyer's willingness-to-pay. However, among online retailers, a deviation from a one-price-for-all policy is the exception. When price discrimination is observed, it is often in the context of customer outrage about unfair pricing. One setting where pricing varies is the name-your-own-price (NYOP) mechanism. In contrast to a typical retail setting, in NYOP markets, it is the buyer who places an initial offer. This offer is accepted if it is above some threshold price set by the seller. If the initial offer is rejected, the buyer can update her offer in subsequent rounds. By design, the final purchase price is opaque to the public; the price paid depends on the individual buyer's willingness-to-pay and offer strategy. Further, most forms of NYOP employ a fixed threshold price policy. In this paper, we compare a fixed threshold price setting with an adaptive threshold price setting. A seller who considers an adaptive threshold price has to weigh potentially greater profits against customer objections about the perceived fairness of such a policy. We first derive the optimal strategy for the seller. We analyze the effectiveness of an adaptive threshold price vis-a-vis a fixed threshold price on seller profit and customer satisfaction. Further, we evaluate the moderating effect of revealing the threshold price policy (adaptive versus fixed) to buyers. We test our model in a series of laboratory experiments and in a large field experiment at a prominent NYOP seller involving real purchases. Our results show that revealing the usage of an adaptive mechanism yields higher profits and more transactions than not revealing this information. In the field experiment, we find that applying a revealed adaptive threshold price can increase profits by over 20 percent without lowering customer satisfaction.

136 citations


Journal ArticleDOI
TL;DR: In this article, the empirical relationship between market structure and price dispersion in the airline markets connecting the U.K. and the Republic of Ireland was analyzed, and the authors found that competition is likely to hinder the airlines' ability to price discriminate, although this effect appears to be lessened in peak periods.
Abstract: This paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the U.K. and the Republic of Ireland. Price dispersion is measured by the Gini coefficient, calculated using fares posted on the Internet at specific days before takeoff. We control for passengers' heterogeneity in their purpose of travel, as well as for such peak periods as Christmas and Easter. Our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines' ability to price discriminate, although this effect appears to be lessened in peak periods.

111 citations


Book
17 Aug 2011
TL;DR: In this article, the authors study the pattern of pricing in which price changes are first announced by one firm and then matched by its rivals, and they show that the follower can benefit from price rigidity so that prices may be changed infrequently.
Abstract: The authors study the pattern of pricing in which price changes are first announced by one firm and then matched by its rivals. In their model, this price leadership facilitates collusion under asymmetric information. In equilibrium, the leader earns higher profits than the follower. Nonetheless, if information is sufficiently asymmetric, the less informed firm prefers to follow the better-informed firm, so the leader can emerge endogenously. The authors show that the follower can benefit from price rigidity so that prices may be changed infrequently. They also show that overall welfare may be lower under collusive price leadership than under overt collusion. Copyright 1990 by Blackwell Publishing Ltd.

105 citations


Posted Content
TL;DR: In this paper, the implications for the carbon price of combining cap-and-trade with other policy instruments, such as feed-in tariffs and renewable energy obligations, are discussed.
Abstract: Putting a price on carbon is critical for climate change policy. Increasingly, policymakers combine multiple policy tools to achieve this, for example by complementing cap-and-trade schemes with a carbon tax, or with a feed-in tariff. Often, the motivation for doing so is to limit undesirable fluctuations in the carbon price, either from rising too high or falling too low. This paper reviews the implications for the carbon price of combining cap-and-trade with other policy instruments. We find that price intervention may not always have the desired effect. Simply adding a carbon tax to an existing cap-and-trade system reduces the carbon price in the market to such an extent that the overall price signal (tax plus carbon price) may remain unchanged. Generous feed-in tariffs or renewable energy obligations within a capped area have the same effect: they undermine the carbon price in the rest of the trading regime, likely increasing costs without reducing emissions. Policymakers wishing to support carbon prices should turn to hybrid instruments � that is, trading schemes with pricelike features, such as an auction reserve price � to make sure their objectives are met.

104 citations


Journal ArticleDOI
TL;DR: In this paper, the authors propose a time-inconsistency problem, where firms have an incentive to promise low prices in the future, but price gouge when the future arrives.

104 citations


Journal ArticleDOI
TL;DR: In this paper, the authors draw on survey data that contain both unit value and price to estimate the severity of quality substitution in Indonesia, and then calculate price elasticities that correct for quality substitution, evaluating and ultimately rejecting a commonly used method for calculating price elasticity using only unit value data.

100 citations


Journal ArticleDOI
TL;DR: In this paper, the authors provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data, and find that international outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing.
Abstract: We provide a comprehensive empirical analysis of the links between international services outsourcing, domestic outsourcing, profits and innovation using plant level data. We find a positive effect of international outsourcing of services on innovative activity at the plant level. Such a positive effect can also be observed for domestic outsourcing of services, but the magnitude is smaller. This makes intuitive sense, as international outsourcing allows more scope for exploiting international factor price differentials, therefore giving the establishment higher profits and more scope to restructure production activities towards innovation. We also find that international outsourcing has a positive effect on profitability, as predicted by theory, while this is not true for domestic sourcing. The results are robust to various specifications and an instrumental variables analysis.

99 citations


Journal ArticleDOI
TL;DR: In this paper, the authors study the price setting problem of a firm in the presence of both observation and menu costs and study how the firm's choices map into several observable statistics, depending on the level and relative magnitude of the observation vs the menu cost.
Abstract: We study the price setting problem of a firm in the presence of both observation and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of its price, an activity which we refer to as a price “review”. Upon each review, the firm chooses whether to adjust its price, subject to a menu cost, and when to conduct the next price review. This behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment. The goal of the paper is to study how the firm’s choices map into several observable statistics, depending on the level and relative magnitude of the observation vs the menu cost. The observable statistics are: the frequency of price reviews, the frequency of price adjustments, the size-distribution of price adjustments, and the shape of the hazard rate of price adjustments. We provide an analytical characterization of the firm’s decisions and a mapping from the structural parameters to the observable statistics. We compare these statistics with the ones obtained for the models with only one type of cost. The predictions of the model can, with suitable data, be used to quantify the importance of the menu cost vs. the information cost. We also consider a version of the model where several price adjustment are allowed between observations, a form of price plans or indexation. We find that no indexation is optimal for small inflation rates.

Book
05 Sep 2011
TL;DR: In this article, the authors seek to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies, and they provide two possible explanations: the first is based on the presence of a small fixed cost of changing prices, and the second, on small costs of discovering the optimal price.
Abstract: This paper seeks to explain why monopolies keep their nominal prices constant for longer periods than do tight oligopolies. We provide two possible explanations. The first is based on the presence of a small fixed cost of changing prices. The second, on small costs of discovering the optimal price. The incentive to change price for duopolists producing differentiated products exceeds that of a single monopolistic firm which produced the same tange of products as the duopoly.

Journal ArticleDOI
TL;DR: In this article, the authors consider the problem of a firm that faces a stochastic (Poisson) demand and must replenish from a market in which prices fluctuate, such as a commodity market.
Abstract: In this paper we consider the problem of a firm that faces a stochastic (Poisson) demand and must replenish from a market in which prices fluctuate, such as a commodity market. We describe the price evolution as a continuous stochastic process and we focus on commonly used processes suggested by the financial literature, such as the geometric Brownian motion and the Ornstein-Uhlenbeck process. It is well known that under variable purchase price, a price-dependent base-stock policy is optimal. Using the single-unit decomposition approach, we explicitly characterize the optimal base-stock level using a series of threshold prices. We show that the base-stock level is first increasing and then decreasing in the current purchase price. We provide a procedure for calculating the thresholds, which yields closed-form solutions when price follows a geometric Brownian motion and implicit solutions under the Ornstein-Uhlenbeck price model. In addition, our numerical study shows that the optimal policy performs much better than inventory policies that ignore future price evolution, because it tends to place larger orders when prices are expected to increase.

Journal ArticleDOI
Zhang Qianqian1
TL;DR: In this article, the authors apply the cointegration and error correction model to measure the impact of oil price on the economy and find that there exists a long-run equilibrium relationship between the oil price and the China's output, the consumer price index, the total amount of net exports and the monetary policy.

ReportDOI
TL;DR: In this article, the authors present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices, and study the impact of trade liberalization on relative factor prices and between-sector factor allocation.
Abstract: How do trade liberalizations affect relative factor prices and to what extent do they cause factors to reallocate across sectors? We first present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices. Under some restrictions, changes in the "factor content of trade" are sufficient statistics for the impact of trade on relative factor prices. We then study the determination of the factor content of trade in a specific version of our general framework featuring imperfect competition, increasing returns to scale, and heterogeneous producers. We show how heterogeneous firms' decisions shape the factor content of trade, and, therefore, the impact of trade liberalization on relative factor prices and between-sector factor allocation.

BookDOI
TL;DR: In this article, the authors developed an empirical model that also included crop inventory adjustments to quantify the influence of various factors on food commodity price inflation, including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation.
Abstract: The food commodity price increases beginning in 2001 and culminating in the food crisis of 2007/08 reflected a combination of several factors, including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation. To quantify these influences, the authors developed an empirical model that also included crop inventory adjustments. The study shows that, if inventory effects are not taken into account, the impacts of the various factors on food commodity price inflation would be overestimated. If the analysis ignores crop inventory adjustments, it indicates that prices of corn, soybean, rapeseed, rice, and wheat would have been, respectively, 42, 38, 52, and 45 percent lower than the corresponding observed prices in 2007. If inventories are properly taken into account, the contributions of the above mentioned factors to those commodity prices are 36, 26, 26, and 35 percent, respectively. Those four factors, taken together, explain 70 percent of the price increase for corn, 55 percent for soybean, 54 percent for wheat, and 47 percent for rice during the 2001-2007 period. Other factors, such as speculation, trade policy, and weather shocks, which are not included in the analysis, might be responsible for the remaining contribution to the food commodity price increases.

Journal ArticleDOI
TL;DR: In this article, a multi-region, dynamic stochastic general equilibrium (MRDSGE) model is built to show that differences in the price elasticity of housing supply can be related to stylized facts on regional differences in house price level, house price volatility, monetary policy propagation mechanism and household asset portfolio.

Posted Content
TL;DR: The authors empirically quantify the impact of inter-temporal price discrimination on profits and welfare and find that sales capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and increase total welfare.
Abstract: We study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we offer a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales: (1) capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and (2) increase total welfare.

Journal ArticleDOI
TL;DR: The authors found that price judgments are influenced by the distribution of observed prices for other items in the same category, and that price perceptions will be influenced by variations in range and ranks of prices in a distribution and contrast effects will be observed.
Abstract: How are price judgments influenced by the distribution of observed prices for other items in the same category? Processing goals will moderate price-judgment processes. When the processing goal is discrimination, price perceptions will be influenced by variations in range and ranks of prices in a distribution and contrast effects will be observed. For example, lowering the price of the lowest-priced product in a set will increase perceived expensiveness of higher-priced products. When the processing goal is generalization, however, price perceptions will be influenced by variations in the mean of the price distribution, in which case assimilation is observed. For example, lowering the price of the lowest-priced product in a set will decrease perceived expensiveness of higher-priced products. This latter finding is in sharp contrast to findings in the current literature on the effect of price structure on price judgments.

Journal ArticleDOI
TL;DR: In this article, the authors apply a Semi-Lagrangean approach to find a price that can be applied in the electricity pool markets where a central system operator decides who produces and how much they should produce.

Posted Content
Shahidur Rashid1
TL;DR: In this paper, the authors examined intercommodity price relationships to assess the relative importance of each of the three major cereals in generating price volatility, and concluded that maize is the most significant in exacerbating price variability with respect to the persistence of shocks to itself and the two other cereals.
Abstract: Cereal price variability in Ethiopia has worsened in recent years, and some of the earlier liberalizations are being reversed due to the unacceptable economic and political costs of increased price variability. The challenge now is to achieve price stability in a cost-effective way. This paper examines intercommodity price relationships to assess the relative importance of each of the three major cereals in generating price volatility. Based on the estimates from a dynamic econometric model, the paper concludes that maize is the most significant in exacerbating price variability with respect to the persistence of shocks to itself and the two other cereals. This implies that focusing on maize, instead of wheat, will not only help better stabilize prices but also reduce costs of stabilization. The results are also discussed in the context of ongoing policy discussions.

Journal ArticleDOI
01 Nov 2011-Empirica
TL;DR: In this article, the authors reveal empirical evidence on parts and components trade as an indicator for international fragmentation of production in the European Union and determine its main explanatory factors, including industry specific factors as well as communication and transportation infrastructure are likewise important for shifting production to or sourcing components from foreign countries.
Abstract: The growth in world trade during the last decades was largely caused by increasing bilateral exchanges of parts and components as a consequence of international fragmentation of production. Apparently, the international integration of the Newly Industrializing and Eastern European economies prompted firms in ‘high-wage’ countries to exploit factor price differences in order to increase their international competitiveness. However, theory predicts that, beside factor price differences, international fragmentation of production should be driven by a multitude of additional determinants. Against this background, the present paper reveals empirical evidence on parts and components trade as an indicator for international fragmentation of production in the European Union and determines its main explanatory factors. The results of a panel data analysis show that especially industry specific factors as well as communication and transportation infrastructure are likewise important for shifting production to or sourcing components from foreign countries.

Posted Content
TL;DR: In this article, the authors argue that price discrimination is more likely to lead to greater welfare than is the uniform pricing alternative, sometimes for every party in the transaction, and that in many such situations, the seller does not obtain an above-average rate of return.
Abstract: Price discrimination is the practice of charging different customers different prices for the same product. Many people consider price discrimination unfair, but economists argue that in many cases price discrimination is more likely to lead to greater welfare than is the uniform pricing alternative — sometimes for every party in the transaction. This article shows i) that there are many situations in which it is necessary to engage in differential pricing in order to make the provision of a product possible; and ii) that in many such situations, the seller does not obtain an above-average rate of return. It concludes that price discrimination is not inherently unfair. The article also contends that even when conditions i) and/or ii) do not occur, price discrimination is not necessarily unethical. In itself, the fact that some people get an even better deal than do others does not entail that the latter are wronged.

Journal ArticleDOI
TL;DR: In this article, the effect of commercial, residential property and equity price volatility on the variability of cyclically adjusted government revenue was investigated, and it was shown that a 1% increase in equity price variability increases government revenue variability by 0.37-0.44%.

Journal ArticleDOI
TL;DR: This paper found that consumers' evaluation of the overall exchange typically places more weight on the price of the new purchase than the trade-in, and that the weights can be shifted systematically by directly manipulating the importance of the tradein and indirectly priming a seller's mind-set.
Abstract: When a new purchase involves trading in an old item, the prices of component transactions may be presented in different ways. The authors report three studies that examine how different price presentations influence evaluations and choice in an otherwise equivalent overall exchange. Although consumers play both buyer and seller roles in purchases involving trade-ins, the authors find that consumers' evaluation of the overall exchange typically places more weight on the price of the new purchase than the trade-in. However, they also show that the weights can be shifted systematically by (1) directly manipulating the importance of the trade-in and (2) indirectly priming a seller (vs. buyer) mind-set. In these instances, consumers place more weight on the trade-in price than the price of the new purchase.

Posted ContentDOI
TL;DR: In this paper, the authors show that agricultural production continues to shift to larger farms in the U.S. and that the shift is persistent over time, large, and ubiquitous across commodities.
Abstract: Agricultural production continues to shift to larger farms in the U.S. I show that the shift is persistent over time, large, and ubiquitous across commodities. I review theories of farm size, and classify three channels for analysis: 1) scale effects, through technological economies and managerial diseconomies; 2) the roles of relative factor prices and factor shares; and 3) policy and institutions. Finally, I evaluate the empirical evidence on the forces driving structural change, distinguishing between crops and livestock because of important differences in the role of scale economies and coordination, and I offer some directions for the future.


Journal ArticleDOI
TL;DR: In this paper, the authors reexamine the Stackelberg duopoly with asymmetric and strictly convex cost functions in a homogeneous product market and show that in a generic environment, the higher-cost firm is likely to be the price leader.
Abstract: The present paper reexamines the price-setting Stackelberg duopoly with asymmetric and strictly convex cost functions in a homogeneous product market. It demonstrates that in a generic environment, the higher-cost firm is likely to be the price leader. That is, leadership by such a firm is either (a) a unique equilibrium or (b) a payoff- and risk-dominant equilibrium in the observable delay game. Thus, while this paper complements and generalizes the findings of recent studies that indicate the possibility of the higher-cost firm’s leadership in homogeneous product markets, it also contrasts with the traditional literature that predicts the dominant-firm price leadership in various environments.

Journal ArticleDOI
TL;DR: In this article, the authors provide a simple behavioural explanation of why manufacturers frequently announce non-binding suggested retail prices for their products, based on the assumption that once the actual price for a product exceeds its suggested retail price, the marginal propensity to consume suddenly jumps downward.
Abstract: We provide a simple behavioural explanation of why manufacturers frequently announce non-binding suggested retail prices for their products. Our model is based on the assumption that once the actual price for a product exceeds its suggested retail price, the marginal propensity to consume suddenly jumps downward. We show that this may induce a monopolistic retailer to set the price equal to the suggested retail price in equilibrium, although the latter price is non-binding. This, in turn, leads to a shift of profits from the retailer to the manufacturer.

Journal ArticleDOI
TL;DR: In this paper, the authors suggest an interpretation of the long-term behavior of oil prices based on the insights of two models, namely signal extraction and Bayesian updating, and show that if the variability of the spot price increases and/or if the spot prices remains higher over a sustained period of time than anticipated by investors, then the probability distribution of the parameter capturing the speed of mean reversion will shift and the expected future price will move closer to the current spot price.
Abstract: One of the major features of the oil market during the 1990s was the relative stability of the long-term oil price. While the spot price exhibited sharp price volatility, that volatility was only partially transmitted to the back end of the futures curve which was anchored around the $20--22 per barrel range. However, as oil prices rose sharply during the boom years, the consensus on the oil price that would balance the long-term fundamentals of the oil market broke down and the whole futures curve became subject to a series of shifts. Our empirical evidence suggests that in the late 1990s and early 2000s there was limited evidence of adjustment between short-term and long-term oil prices. These dynamics, however, changed in early 2005 with the long-term price making most of the adjustment towards the prompt price. We suggest an interpretation of the long-term behaviour of oil prices based on the insights of two models. The first is based on a signal extraction mechanism and shows that when the private beliefs by investors about the long-run determinants of oil prices become less precise relative to the information contained in the current spot price, then the expected future oil price becomes closer to the current spot price. The second model is based on Bayesian updating and shows that if the variability of the spot price increases and/or if the spot price remains higher over a sustained period of time than anticipated by investors, then the probability distribution of the parameter capturing the speed of mean reversion will shift and the expected future price will move closer to the current spot price. Our analysis predicts that in the face of increased uncertainty the long-term and short-term prices are bound to exhibit similar movements. These changes have important consequences on the oil price formation process. Copyright 2011, Oxford University Press.