Showing papers on "Factor price published in 2012"

Global Food Price Volatility and Spikes: An Overview of Costs, Causes, and Solutions

Abstract: Since the 2007-08 food crisis, many thoughtful analyses have addressed the causes and impacts of high and volatile international food prices and proposed solutions to the crisis. These studies have covered global as well as local food price dynamics and policy reactions. The food price problem is, however, far-reaching, and its impacts are wide and interrelated. The price formation mechanism has become highly complex and dynamic. Policy actions are politically and economically sensitive. This situation calls for continuous and comprehensive assessments of the problem to provide timely and evidence-based knowledge for policy makers. This paper reviews existing evidence and theories and presents new thoughts and insights from analyses to enlighten the course of actions to be taken. Our review implies that the current body of literature concentrates on high food prices. Commodity price analysis should, however, differentiate between three types of price changes: trends, volatility, and spikes. While price trends are important in the long term, volatility and spikes are more important in the short to medium terms. Descriptive statistics indicate that all three price changes are increasing over time and show strong correlations among themselves. A rising medium-term price trend has triggered extreme short-term price spikes and increased volatility. An assessment of the costs of price volatility has shown that the existing literature follows a conventional marginal-cost approach that considers only few cost components. Direct and immediate components have not been adequately analyzed, and long-term effects have been overlooked. The effect on child nutrition and health is one such long-term effect. Under-nutrition in early childhood has negative consequences for lifetime earnings capacity because of the physical and mental impairment it causes. Economy wide distortions and misallocations also threaten the long-term development of commodity-dependent economies. Measuring and estimating the cost of food price volatility should factor in ongoing processes such as economic growth and technological changes. The supply, demand, and market explanations for high and volatile global prices have been differentiated as exogenous and endogenous factors. To help further identify the drivers of food price changes, they are categorized as root causes, intermediate causes, and immediate causes. Both empirical and theoretical evaluations suggest extreme weather events from the supply side, biofuel production from the demand side, and speculation in commodity futures from the market side are the three most important root causes of observed price volatility. The theoretical and empirical effects of speculation in commodity futures are not yet well understood. However, speculative trading in commodity futures should not be viewed as a random bet that can be smoothed out through the price system. It is important to consider the market and nonmarket contexts that guide the behavioral and strategic choices of speculators. Whereas speculation caused by manipulative, disorderly behaviors and ‘financialization’ are damaging, speculation caused by demand and supply in physical markets can serve as price discovery, liquidity, and risk-hedging mechanisms. Our empirical analysis to quantify the importance of these factors shows that speculation effect is stronger than demand- and supply-side shocks for short term price spikes. Overall policy interventions at global, regional, and local levels should concentrate on reducing price spikes and protecting poor people from short- and long-term crises. The viii formulation and implementation of such policies must be supported with timely information and research-based evidence. A comprehensive portfolio of policy actions is proposed here, rather than over-extended individual measures to address the root causes or over-regulation of markets to address volatility and spikes. Evaluation of policy instruments should weigh the true costs associated with both, action versus inaction. Research must focus on developing price and food security indicators and models that will guide policy implementation also in the short run. Such models are currently missing.

Does Price Elasticity Vary with Economic Growth? A Cross-category Analysis

Abstract: How does price sensitivity change with the macroeconomic environment? We explore this question by measuring price elasticity using household-level data across 19 grocery categories over 24 quarters. For each category, we estimate a separate random-coefficients logit model with quarter-specific price response parameters, and control functions to address endogeneity. Our specification yields a novel set of 456 elasticities across categories and time that we generated using the same method and therefore can directly compare them. On average, price sensitivity is counter-cyclical — it rises when the macroeconomy weakens. However, substantial variation exists, and a handful of categories exhibit procyclical price sensitivity. We show the relationship between price sensitivity and macroeconomic growth correlates strongly with the average level of price sensitivity in a category. We examine several explanations for this result and conclude a category’s share-of-wallet is the more likely driver versus alternative explanations based on product perishability, substitution across consumption channels, or market power.

Determinants of immediate price impacts at the trade level in an emerging order-driven market

Abstract: Common wisdom argues that, in general, large trades cause large price changes, whereas small trades cause small price changes. However, for extremely large price changes, the trade size and news play a minor role, while liquidity (especially price gaps on the limit order book) is a more influential factor. Hence, there might be other factors influencing the immediate price impacts of trades. In this paper, through mechanical analysis of price variations before and after a trade of arbitrary size, we identify that the trade size, the bid–ask spread, the price gaps and the outstanding volumes at the bid and ask sides of the limit order book have an impact on the changes in prices. We propose two regression models to investigate the influence of these microscopic factors on the price impact of buyer-initiated partially filled trades, seller-initiated partially filled trades, buyer-initiated filled trades and seller-initiated filled trades. We find that they have quantitatively similar explanatory powers and these factors can account for up to 44% of the price impacts. Large trade sizes, wide bid–ask spreads, high liquidity at the same side and low liquidity at the opposite side will cause a large price impact. We also find that the liquidity at the opposite side has a more influential impact than the liquidity at the same side. Our results shed new light on the determinants of immediate price impacts.

The Influence of Price Presentation Order on Consumer Choice

Abstract: Existing theory and prior research suggest that consumers perceive purchase prices more/less favorably when they are preceded by higher/ lower prices. However, to date, researchers have found these effects in contexts in which the product, and thus perceived quality, is held constant. Given that consumers commonly believe price and quality are positively correlated and that price–quality perceptions have been shown to influence price evaluations and willingness to pay, the generalizability of existing research to commonly encountered contexts is questionable. In this research, the authors examine the influence of price order on consumer choice across differing brands in contexts in which consumer quality perceptions are free to covary with price and they are manipulated to be correlated or uncorrelated with price. Using reference dependence theory as a framework, they find that when differing brand options are presented in descending price order, consumers tend to choose higher-price options; whe...

To divide or not to divide? The impact of partitioned pricing on the informational and sacrifice effects of price

Abstract: Firms often partition a product’s price into two mandatory parts (e.g., the base price of a mail-order DVD and the surcharge for shipping and handling) instead of charging one all-inclusive price. This study examines whether and to what extent partitioned pricing (compared to one all-inclusive price) influences the informational and sacrifice effects of price. We empirically show that partitioned pricing oppositely affects these two distinct roles of price: the informational effect of price (i.e., price as an indicator of quality) increases, while the sacrifice effect (i.e., price as a measure of sacrifice) becomes more negative. In product categories with substantial price–quality inferences, the positive impact of partitioned pricing on the informational effect can overcompensate for its negative impact on the sacrifice effect, making partitioned prices the preferable strategy.

Macroeconomic Variables and Stock Price: New Evidence from Iran

Abstract: The main purpose of this paper is to investigate the impact of macroeconomic variables such as interest rate, house price and gold price on stock price in capital market of Iran. To do so, we have used a sample of monthly data from March 2001 to April2011. The study is based upon a vector auto regression (VAR) model and Johansen-Juselius Cointegration positive relationship between stock price and house price, but the relationship between nominal interest rate and gold price with stock price are negative. Also, the results of Impulse-Response Functions shocks show that stock price reaction to the shocks is very fast. Furthermore, study of the variance decomposition indicated although most of fluctuation in stock price can be attributed to itself, but among the selected variables, the house price has main role on stock price fluctuation. that investors choose their portfolio based on Markowitz Many researchers have been done the long-run and mean-variance criterion. This model summarizes the effect short-run relationships among stock price index and of all factors on stock market in one factor, whereas the macroeconomic variables in developed and developing stock market may be affected by various factors. These countries. Empirical results show that interest rate, can be divided into macro and micro economic factors housing market and gold price can greatly affect the including economic development, gold price, house price, economy and stock market. Historical experience shows money supply, interest rate, exchange rate and internal that in countries during period of stock market slump, the factors of companies and economic institutes such as gold market always has uptrend.

A Defense of a Thomistic Concept of the Just Price

Abstract: Since St. Thomas Aquinas was one of the first scholastics to analyze the idea of a “just price,” economists, economic historians and philosophers interested in the philosophical underpinnings of the market have focused on Aquinas’s writings. One group insists that Aquinas defined the just price as the payment needed to cover sellers’ labor and material costs. A second camp vehemently counters that Aquinas’s just price is simply the going market price. We argue that neither of these views is correct. The Thomistic just price is the price that would be agreed to by a just person as part of an exchange. This “just person price” takes into account the well-being of the individual transactors and the good of the entire community. Such a price reduces neither to the cost-covering price nor to the market exchange price. A Thomistic concept of the just person price deserves to be reconsidered, especially because a Thomistic approach offers some useful ways to deal with issues quite differently from the popular neoclassical approach directed toward arriving at a socially optimal market price.

Research Note---Online Price Dispersion: A Game-Theoretic Perspective and Empirical Evidence

Abstract: The existence and persistence of price dispersion for identical products in online markets have been well-documented in the literature. Possible explanations of this price dispersion, derived mainly using hedonic price models, have seen only modest success. In this paper, we propose a competitive model based on online retailers' differentiation mainly in service provided and recognition enjoyed to explain price dispersion. Our exploratory empirical analyses, using cross-sectional data, demonstrate that the competitive model provides a better explanation of the association between prices and online retailers' service and recognition levels. In addition, our competitive model is able to explain observations that are seemingly inconsistent with the hedonic model such as the negative association between service and price. This paper contributes to the literature on price dispersion by offering a differentiation model that provides a good fit with data and by proposing a theory that explains previous counterintuitive observations of prices. Our model also helps an e-tailer to choose a desirable position in the competitive market.

Price Sensitivity to Tourism Activities: Looking for Determinant Factors:

Abstract: The literature contains evidence that there is a marked heterogeneity in price responses to tourism products, leading to a great variety of tourist sensitivities to price. Thus the role price plays is complex, and a particularly challenging aspect of this complexity is that its effect is not unambiguous, thereby negating the idea that the demand for tourism products and tourist activities can always be regarded as demand for ordinary goods. This article identifies and explains, as a novelty for the tourism industry, price sensitivities to tourism activities individual by individual. The operative formalization uses a mixed logit model to estimate the individual sensitivities to price, and then a regression analysis is applied to detect their determinants. The empirical application finds that motivations, influenced by age, and length of stay with a non-linear effect, are explanatory factors of tourists� price sensitivity to activities.

Reference Prices as Determinants of Business-to-Business Price Negotiation Outcomes: An Empirical Perspective from the Chemical Industry

Abstract: Price negotiations in supply chain relationships often take place during annual pricing reviews. This study integrates transaction cost economics and reference price thinking from consumer behavior to understand better how a seller's reservation price, aspiration price, and initial price offering might influence the ultimate settlement price. We apply ridge regression to negotiation data from 282 business relationships of a German chemicals supplier with customers in six client industries. Overall, the three determinants explain 86 percent of the variation in the settlement price. A seller's reservation price is substantially less important than the aspiration price or the initial price offering. Although this outcome can be explained via a reference price perspective, transaction cost economics theory helps clarify the industry differences that determine the impact of reservation prices and initial price offerings on settlement prices.

Price Manipulation, Price Discovery and Transaction Costs in the Crossing Network

Abstract: This paper proposes the first tractable rational expectation equilibrium model that includes both endogenous price and endogenous execution probability I use the model to examine the market outcome when the informed trader can split trades between an exchange and a crossing network (dark pool) in which buy and sell orders are passively matched using the price set by the stock exchange The crossing network reduces price discovery and the impact is stronger for stocks with higher fundamental value uncertainty However, the informed trader does not have the incentive to manipulate the market by trading in the wrong direction in the exchange and then benefiting from the resulting mispricing by matching orders in the crossing network, because the cost to move the price away from the fundamental value is higher than the profit from the crossing network The informed trader’s optimal decision generates positive correlation between price impact in the exchange and non-execution probability in the crossing network, and an increase in the fundamental value uncertainty increases both price impact and non-execution probability I examine the market outcome under three different allocation rules The 'fair access' policy proposed by the Securities and Exchange Commission harms price discovery and increases the adverse selection problem in the crossing network

More Machines, Better Machines…or Better Workers?

Abstract: How much of the rapid growth in output per man-hour in nineteenth-century cotton weaving arose from technical change and how much arose from price-driven substitution of capital for labor? Using an engineering production function, I find that factor price changes account for little of the growth in output per man-hour. However, much of the growth and most of the apparent labor-saving bias arose not from inventions, but from improved labor quality—better workers spent less time monitoring the looms. Labor quality played a critical role in the persistent association between economic growth and capital deepening in this important sector.

Expected product price as a function of factors of price sensitivity

Abstract: Purpose – This paper presents a model relating Nagle and Holden's factors of price sensitivity to expected price and willingness to pay. This work presents various perspectives on price elasticity/sensitivity, empirically tests aspects of the influence of perception of the offer (product/service) on expected price, and illustrates how the pricing methods developed within provide quantitative precision to the practice of price setting by capturing perceptions important to consumers.Design/methodology/approach – The authors used a within‐subjects design to study four brands in two product categories, automobiles and computers. Model evaluation employs ordinary least squares regression.Findings – Ten qualitative factors were studied. Overall, the results show four factors predict expected price for the target market, product and brand. The factors are perceived substitutes, quality, fairness, and unique value.Originality/value – This research makes the following contributions. First, the authors are able to ...

Non-Risk Price Discrimination in Insurance: Market Outcomes and Public Policy

Abstract: This paper considers price discrimination in insurance, defined as systematic price variations based on individual customer data but unrelated to those customers’ expected losses or other marginal costs (sometimes characterised as “price optimisation”). An analysis is given of one type of price discrimination, “inertia pricing”, where renewal prices are higher than prices for risk-equivalent new customers. The analysis suggests that the practice intensifies competition, leading to lower aggregate industry profits; customers in aggregate pay lower prices, but not all customers are better off; and the high level of switching between insurers is inefficient for society as a whole. Other forms of price discrimination may be more likely to increase aggregate industry profits. Some public policy issues relating to price discrimination in insurance are outlined, and possible policy responses by regulators are considered. It is suggested that competition will tend to lead to increased price discrimination over time, and that this may undermine public acceptance of traditional justifications for risk-related pricing.

The role of saving and investment in a SAM price model

Abstract: Social accounting matrices (SAMs) are normally used to analyse the income generation process. They are also useful, however, for analysing the cost transmission and price formation mechanisms. For price contributions, Roland-Holst and Sancho (1995) used the SAM structure to analyse the price and cost linkages through a representation of the interdependence between activities, households and factors. This paper is a further analysis of the cost transmission mechanisms, in which we add the capital account to the endogenous components of the Roland-Holst and Sancho approach. By doing this we reflect the responses of prices to the exogenous shocks in saving and investment. We also present an additive decomposition of the global price effects into categories of interdependence that isolates the impact on price levels of shocks in the capital account. We use a 2001 social accounting matrix to make an empirical application of the Catalan economy.

Understanding Price Controls and Non-Price Competition with Matching Theory

Abstract: We develop a quality competition model to understand how price controls affect market outcomes in buyer-seller markets with discrete goods of varying quality While competitive equilibria do not necessarily exist in such markets when price controls are imposed, we show that stable outcomes do exist and characterize the set of stable outcomes in the presence of price restrictions In particular, we show that price controls induce non-price competition: price floors induce the trade of inefficiently high quality goods, while price ceilings induce the trade of inefficiently low quality goods

Price and Customers’ Perceptions of Value

Abstract: This chapter summarizes the behavioral pricing research findings of price and how buyers respond to price. This includes the relationship between price and perceived value and the decision heuristics that help us understand how price influences perceptions of value and eventual product choice. Buyers also use price as an indicator of product quality, and customers’ perceptions of quality, benefits, and value affect how they will respond to a purchase situation. In addition, buyers’ perceptions of the sacrifice affect the purchase decision, that is the degree that consumers reflect on the amount that they would “give up” by paying the monetary price for a product may vary according to a variety of situations and conditions, such as type of product or service, or the perceived unfairness of the price, or if the buyer perceives a brand is superior to competing brands. The chapter also discusses how buyers trade off or compare the perceived gains arising from price-quality judgments versus the perceived sacrifice required to acquire the product or service, including whether buyers integrate price and other attribute information following a nonlinear (proportional) or linear (subtractive) process. It also summarizes research on price as a multidimensional attribute, considered with additional dimensions such as warranty coverage, and warrantor reputation. Finally, the chapter examines perceived product value as being decomposed into its (1) perceived acquisition value (the expected benefit to be gained from acquiring the product less the net displeasure of paying for it) and (2) perceived transaction value (the perceived merits or fairness of the offer or deal).

Heterogeneous Price Information and the Eect of Competition 1

Abstract: This paper examines how the distribution of prices and consumer welfare change with the number of competitors in a model where consumers di¤er in the amount of price information they have. We only assume that an increase in the number of competitors results in an increase in the probability that consumers observe more prices. We then show, first, that the lower percentiles of the price distribution must decrease when the number of competitors goes up, while the higher percentiles of the price distribution need not decrease. We next provide a sufficient condition for all price percentiles to decline. In such a situation, some percentiles fall more than others, which leads to asymmetric consumer welfare gains from increased competition. Third, we provide a sufficient condition under which the higher percentiles of the distribution of prices paid by all types of consumers increase. When this happens, the probability that a consumer already paying a high price will pay even a higher price increases and it may even be the case that some consumers experience a welfare loss on average. Nevertheless, the weighted average price paid by consumers - the consumer surplus - always (weakly) decreases with increased competition. We provide an empirical strategy to identify how the response of prices to increased competition varies along the price distribution and use gasoline price data from the Netherlands to illustrate.

What causes asymmetric price transmission in agro-food sector? : meta-analysis perspective

Abstract: There now exists a large literature on price transmission in agro-food sectors. However, a great majority of empirical studies focus on the existence of asymmetry and, by and large, do not allow investigating the reason for its presence or absence. This is in sharp contrast to the theoretical literature that provides a number of explanations for why we should expect (a)symmetry. In response to this, this paper tries to uncover the reasons for asymmetric price transmission in the agro-food chain. To do so, we use meta-analysis drawing on the existing studies from this area. Our focus is on the organizational and institutional characteristics of the agro-food supply chain. Our findings suggest that asymmetric price transmission in farm-retail relationship is more likely to occur in sectors/countries with more fragmented farm structure, higher governmental support and more restrictive regulations on price controls in retail sector. On the other hand, more restrictive regulations on entry barriers in retail sector and relative importance of the sector in question tend to promote symmetric farm-retail price transmission. The latter is also more likely in the presence of strong processing industry.

Public Procurement of homogeneous goods: Czech Republic case study

Abstract: The goal of this paper is to show how institutional and procedural characteristics affect the final price of the public procurement. In order to get comparable prices, only public procurement of homogeneous goods is analyzed. Presented model attempts to explain the variation in unit price as a function of price estimated by the contracting authority, market price and characteristic of procurement procedure – type of procedure, number of bidders and use of electronic auction. We find that the final price in the electricity and natural gas public procurement is more sensitive to purchaser’s estimate than to actual market price. At the same time, we identify that the final price is reduced by using open procedure, electronic auction or attracting more competitors.