Showing papers on "Factor price published in 2013"

Low Prices are Just the Beginning: Price Image in Retail Management:

Abstract: Recent managerial evidence and academic research has suggested that consumer decisions are influenced not only by the prices of individual items but also by a retailer's price image, which reflects a consumer's impression of the overall price level of a retailer. Despite the increasing importance of price image in marketing theory and practice, existing research has not provided a clear picture of how price images are formed and how they influence consumer behavior. This article addresses this discrepancy by offering a comprehensive framework delineating the key drivers of price image formation and their consequences for consumer behavior. Contrary to conventional wisdom that assumes price image is mainly a function of a retailer's average price level, this research identifies several price-related and nonprice factors that contribute to price image formation. The authors further identify conditions in which these factors can overcome the impact of the average level of prices, resulting in a low price ima...

Price Rigidity: Microeconomic Evidence and Macroeconomic Implications

Abstract: We review recent evidence on price rigidity from the macroeconomics literature and discuss how this evidence is used to inform macroeconomic modeling. Sluggish price adjustment is a leading explanation for the large effects of demand shocks on output and, in particular, the effects of monetary policy on output. A recent influx of data on individual prices has greatly deepened macroeconomists’ understanding of individual price dynamics. However, the analysis of these new data raises a host of new empirical issues that have not traditionally been confronted by parsimonious macroeconomic models of price setting. Simple statistics such as the frequency of price change may be misleading guides to the flexibility of the aggregate price level in a setting in which temporary sales, product churning, cross-sectional heterogeneity, and large idiosyncratic price movements play an important role. We discuss empirical evidence on these and other important features of micro price adjustment and ask how they affect the ...

Price Competition with Consumer Confusion

Abstract: This paper proposes a model in which identical sellers of a homogenous product compete in both prices and price frames (i.e., ways to present price information). We model price framing by assuming that firms’ frame choices affect the comparability of their price offers: consumers may fail to compare prices due to frame differentiation, and due to frame complexity. In the symmetric equilibrium the firms randomize over both price frames and prices, and make positive profits. This result is consistent with the observed coexistence of price and price frame dispersion in the market. We also show that (i) the nature of equilibrium depends on which source of consumer confusion dominates, and (ii) an increase in the number of firms can increase industry profits and harm consumers.

An appraisal of behavioral price research (part 1): price as a physical stimulus

Abstract: How do buyers judge prices? How do they know whether a product or service is priced reasonably, is a good deal or is too expensive? Do buyers perceive all price increases and all price promotions? Do price promotions and price increases necessarily change buyer behavior? How do buyers process the plethora of price information they encounter each day? Economists contend that price primarily represents the monetary sacrifice to obtain a product or service. Behavioral price researchers argue that more complex phenomena are involved. Buyers have individual, internal norms against which they judge prices. There are threshold points below which buyers do not perceive price changes. There are also specific ranges of prices buyers find acceptable for a particular product. Despite over four decades of behavioral price research, we know little about the root causes of these buyer responses to price information. This article is the first of several planned essays that will review the historical, theoretical and empirical developments in the field of behavioral price research. In this first review, we examine the core concepts behind buyer responses to price as well as the complex way that people process numbers. The objective of these essays is to bring focus to, clarify conceptual definitions, examine empirical developments and raise future research questions for this field of study.

Immigration in Europe: Trends, Policies and Empirical Evidence

Abstract: This chapter summarizes the main trends, policies and empirical evidence regarding immigration in Europe. We start by providing descriptive evidence on long-term immigration trends and current characteristics of the immigrant populations in various important European destination countries and Europe as a whole. We then discuss key policy issues in the European context, focusing on access to citizenship, asylum seeking, border enforcement, amnesties and policies to attract talent. In the second part of the chapter, we provide a survey of the large and growing literature on the recent European immigration experience, focusing on two key questions: what has been the socio-economic performance of immigrants in their destination countries and how has immigration impacted these countries' economies and native populations.We find large and highly persistent gaps in the economic performance of immigrants relative to natives in most destination countries, with only few instances of encouraging progress. Overall, there is little evidence of a detrimental effect of immigration on the economies of the host countries, which appear to respond to immigrant inflows through mechanisms more complex than simple factor price adjustments.

Reconsidering price limit effectiveness

Abstract: We study China's experience with price limits by comparing a period with price limits to a period without price limits. Although many prior studies document costs of price limits, we show benefits of price limits. We find that price limits can facilitate price discovery, moderate transitory volatility, and mitigate abnormal trading activity. A tighter price limit for poorly performing stocks can also moderate volatility. We do not find evidence of a magnet effect, which suggests that prices gravitate to limit prices. Finally, we find evidence that price limits can facilitate market recovery following crashes.

Food price volatility in developing countries and its determinants

Abstract: This article contributes to the ongoing discussion on the drivers of food price volatility. Based on theoretical considerations, economical, agricultural, and political determinants of domestic price volatility are identified and discussed. A dynamic panel is estimated to account for country fixed effects and persistence of volatility. Two approaches are followed in order to consistently estimate the impact of time-invariant variables. First, system GMM using levels instead of first differences and, second, a two-step IV estimation using the residuals from the system GMM estimation. Findings suggest that stocks, production, international price volatility, and governance significantly affect domestic price variability. Furthermore, improved functionality of markets and reduced transaction costs can stabilise prices. With respect to agricultural policies, public stockholding seems to be associated with less volatility, whereas trade restrictions do not enhance price stabilisation. Lastly, landlocked countries experience less variability in grain prices, while African countries have more volatile prices than countries on other continents.

Oil price volatility, economic growth and the hedging role of renewable energy

Abstract: This paper investigates the adverse effects of oil price volatility on economic activity and the extent to which countries can hedge against such effects by using renewable energy. By considering the Realized Volatility of oil prices, rather than following the standard approach of considering oil price shocks in levels, the effects of factor price uncertainty on economic activity are analyzed. Sample countries represent developed and developing, oil importing and exporting and service/industry-based economies (United States, Japan, Germany, South Korea, India, and Malaysia) and thus complement the standard literature's analysis of Western OECD countries. In a vector auto-regressive setting, Granger causality tests, impulse response functions, and variance decompositions show that oil price volatility has more-adverse effects in all sample countries than oil price shocks alone can explain. The paper finds that the sensitivity to oil price volatility varies widely across countries and discusses various factors which may determine the level of sensitivity (such as sectoral composition and the energy mix). This implies that the standard approach of solely considering net oil importer-exporter status is not sufficient. Simulations of volatility shocks in hypothetical energy mixes (with increased renewable shares) illustrate the potential economic benefits resulting from efforts to disconnect the macroeconomy from volatile commodity markets. It is concluded that expanding renewable energy can in principle reduce an economy's vulnerability to oil price volatility, but a country-specific analysis would be necessary to identify concrete policy measures. Overall, the paper provides an additional rationale for reducing exposure and vulnerability to oil price volatility for the sake of economic growth.

Transparency in pricing and its effect on perceived price fairness

Abstract: Purpose – This research aims to examine the effects of transparency in pricing (i.e. disclosure of a price increase and extent of explanation) on perceived price fairness when a firm increases price. Design/methodology/approach – US adult consumer panelists participated in two online experiments. Findings – Consumers perceive a firm's price increase as more fair when the firm discloses the increase itself as compared to an outside source disclosing it. For a small price increase, a limited explanation was perceived as more fair; for a larger price increase, a more detailed aligned cost explanation was perceived as more fair. Research limitations/implications – Firms who must raise prices may increase consumer perceptions of price fairness by disclosing the price increase and providing an appropriate explanation matched to the size of the increase. Originality/value – This research focuses on the effects of being more transparent about pricing in the case of a price increase. Perceived price fairness is af...

Strategic price positioning for revenue management: The effects of relative price position and fluctuation on performance

Abstract: Emerging price optimization models systematically incorporate competitor price information into the derivation of optimal price points. While consideration of competitor pricing at this tactical level is essential to maximizing short-term revenues, the long-term impact of competitive price positioning on revenue performance should not be overlooked. This study examines the effect of two key dimensions of strategic price positioning – relative price position and relative price fluctuation – on the revenue performance of 6998 US hotels over an 11-year period. It finds that revenue performance is strongest for hotels that price higher than the competition and maintain a consistent relative price over time. Implications for revenue management practitioners are discussed.

Power (Lessness) of the State in Globalisation Era: Empirical Proposals on Determination of Domestic Paddy Price in Thailand

Abstract: In the context of globalisation, states are insinuated as little homes in the global village. Although arguments on change of powers in the current situation are widely made qualitatively, quantitative analysis by empirical information is still minimal. This study, therefore, chose an advanced quantitative methodology, using time series data on domestic paddy price, cost of domestic rice production, rice world market price, and the government-determined price according to its policy, in multiple regression analysis.The research findings show that, as the cost of domestic rice production does not influence domestic paddy price, at statistical significance of .05, the domestic paddy price is in fact more affected by the rice world market price, which represents the power of globalisation, than by the price determined by the government, which represents the power of the state, at statistical significance of .05, for approximately 4.78 times, indicating that state power in this context is no longer in the position to bargain with the power of globalisation. Hence, policy recommendations continue to be regarded with the adjustments of economic management, in which the current Thai government still chooses to utilise great amount of its budget to intercept the market price of rice.

Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity

Abstract: We develop a method for identifying departures from relative factor price equality that is robust to unobserved variation in factor productivity. We implement this method using data on the relative wage bills of nonproduction and production workers across 170 local labor markets comprising the continental United States for 1972, 1992, and 2007. We find evidence of statistically significant differences in relative wages in all three years. These differences increase in magnitude over time and are related to industry structure in a manner that is consistent with neoclassical models of production

Retailers' Use of Partially Comparative Pricing: From Across- Category to Within-Category Effects

Abstract: Prior research suggests that partially comparative pricing—in which a retailer provides price comparisons for some, but not all, of its products—is a double-edged sword. On the one hand, such pricing improves beliefs about the retailer's competitive price advantage on comparatively priced products for which its prices are compared with a competitor. On the other hand, it has been shown to damage perceptions of the retailer's noncomparatively priced products relative to those charged by the competition. However, this latter outcome is based on evidence examining the influence of partially comparative pricing across different product categories. The authors propose and demonstrate in five studies that price comparisons may actually improve relative price beliefs about the noncomparatively priced brands within the same product category. They further show this improvement to be attenuated as the number of price comparisons increase or when the price comparison is attached to a brand perceived as less typical ...

Does Trade Reduce Poverty? A View from Africa

Abstract: Although trade liberalization is being actively promoted as a key component in development strategies, theoretically, the impact of trade openness on poverty reduction is ambiguous. A more liberalized trade regime is argued to change relative factor prices in favor of the more abundant factor. If poverty and relative low income stem from abundance of labor, greater trade openness should lead to higher labor prices and a decrease in poverty. However, should the re-allocation of factors be hampered, the expected benefits from freer trade may not materialize. The theoretical ambiguity on the effects of openness is reflected in the available empirical evidence. This paper examines how the effect of trade openness on poverty may depend on complementary reforms that help a country take advantage of international competition. Using a non-linear regression specification that interacts a proxy of trade openness with proxies of various country structural specificities and a panel of 30 African countries over the period 1981-2010, the analysis finds that trade openness tends to reduce poverty in countries where financial sectors are deep, education levels high and governance strong.

Measuring Institutional Competitiveness in Europe

Abstract: While there are many methods to measure the competitiveness of an economy, most of these concepts ignore the fact that competitiveness can change because of market processes like wage negotiation but also because of political decision-making. Governments that compete with others for factors of production face the incentive to adjust key policy variables to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness is not easy, but strongly warranted given current discussions that some EMU Member States should improve their competitive position within the euro area by adjusting policy variables. Increasing country competitiveness is one of the key objectives currently discussed by policy makers in the context of creating an economic union in the euro area, to complement monetary union. We propose a new competitiveness index that captures the dimensions in which politics can influence competitiveness beyond factor price adjustments. Our index shows that the individual components of institutional competitiveness have developed heterogeneously among EMU Member States. To explain these divergent developments, the uneven integration within the EU Single Market may play a role.

Do price limits hurt the market

Abstract: Under an artificial stock market composed of bounded-rational and heterogeneous traders, this paper examines whether or not price limits generate the negative effects on the market. Through testing the volatility spillover hypothesis, the delayed price discovery hypothesis, and the trading interference hypothesis, we find that no evidence of volatility spillover is observed. However, the phenomena of delayed price discovery and trading interference indeed exist, and their significance depends on the level of the price limits.

The multi-market analysis of a housing price transmission model

Abstract: In this article, we examine dynamic relationships among housing prices from four firsttier cities in China from December 2000 to May 2010 and present an equilibrium model of housing price in multi-markets. By explicitly incorporating and modelling endogenous price series in competing housing markets, our empirical model is able to capture the existence of long-run equilibrium relationships and important short-run dynamics and price structures such as price leadership, price transmission lag and asymmetric price responses. Such multi-market analysis has generalized implications and can easily be applied to analyse the pricing dynamics among other real estate markets in the world. Our major contribution lies in two aspects. First, we employ an Error-Correction Model (ECM) with Directed Acyclic Graphs (DAG) to study the price dynamics in the four largest and key housing markets in China. Second, we uncover a price transmission among these housing markets in China and provide an insightful understanding of price adjustment across markets. The revealed effective price transmission and high correlation among these different markets actually is not a good thing for a stable financial system and for the defence against price bubbles in the housing market.

Measuring Institutional Competitiveness in Europe

Abstract: While there are many methods to measure the competitiveness of an economy, most of these concepts ignore the fact that competitiveness can change not only because of market processes such as wage negotiation but also because of political decision making. Governments that compete with others for factors of production face the incentive to adjust key policy variables such as tax rates to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness are not easy, but strongly warranted given current discussions that some Economic and Monetary Union (EMU) Member States should improve their competitive position within the euro area by adjusting policy variables. Increasing country competitiveness is one of the key objectives currently discussed by policy makers in the context of creating an economic union in the euro area, to complement monetary union. We propose a new competitiveness index that captures the dimensions in which politics can influence competitiveness beyond factor price adjustments. Our index shows that the individual components of institutional competitiveness have developed heterogeneously among EMU Member States. To explain these divergent developments, the uneven integration within the European Union Single Market may play a role. (JEL codes: E02, E44, F15, H11, N44) Copyright The Author 2013. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Endogenous Growth in an Aging Economy: Evidence and Policy Measures

Abstract: This paper presents a two-sector overlapping generation (OLG) model to capture the impact of population aging on a regional economy (Illinois) and compares the effectiveness of government policy in an endogenous growth perspective. Comparing the computational results of a one-sector OLG model, where an agent’s productivity is given exogenously, this paper confirms that endogenously determined investment in human capital significantly offsets the negative effects of the aging population on the regional economy. This paper also explores if there is room for the government to weaken and prevent the negative effects of the aging population. This paper examines the effects of two kinds of government transfer systems on the regional economy: money transfer and educational transfer systems. The money transfer, which is redistributed to agents by the government, could be used for an individual’s consumption, saving and educational investment. Educational transfer is made directly to the individual proportional to his or her opportunity cost stemming from educational investment. The results show that the educational transfer system is superior to the money transfer system in the long run in terms of per-capita income growth, aggregate welfare improvements and factor price stabilization. However, the results imply that the implementation of an educational transfer system accompanies trade-offs between economic growth and a more equal distribution of income and wealth.

Input Demand under Joint Energy and Output Prices Uncertainties

Abstract: In this paper, we analyze the impacts of joint energy and output prices uncertainties on the inputs demands in a mean-variance framework. We find that an increase in expected output price will surely cause the risk averse firm to increase the inputs’ demand, while an increase in expected energy price will surely cause the risk averse firm to decrease the demand for energy and increase the demand for non-risky inputs. Further, increasing the variance of energy price will necessarily cause the risk averse firm to decrease the demands for the non-risky inputs. Furthermore, we investigate the two cases with only uncertain energy price and only uncertain output price. In the case with only uncertain energy price, we find that the uncertain energy price has no impact on the demands for the non-risky inputs.

Subsidizing Price Discovery

Abstract: When markets freeze, not only are gains from trade left unrealized, but the process of information production through prices, or price discovery, is disrupted as well. Though this latter effect has received much less attention than the former, it constitutes an important source of inefficiency during times of crisis. We provide a formal model of price discovery and use it to study a government program designed explicitly to restore the process of information production in frozen markets. This program, which provided buyers with partial insurance against acquiring low-quality assets, reveals a fundamental trade-off for policymakers: while some insurance encourages buyers to bid for assets when they otherwise would not, thus promoting price discovery, too much insurance erodes the informational content of these bids, which hurts price discovery.

Market imperfections, trade reform and total factor productivity growth: theory and practices from India

Abstract: The study investigates how market imperfections distort the impact of trade reform on productivity growth. As the trade expands it influences both product and factor prices and if the distortions arise due to these market imperfections are not eliminated, the usual estimate of total factor productivity growth, using the growth accounting method, would be misleading. Theoretically, it shows that the usual estimate tends to be overestimated in the export competing sector and underestimated in the import competing sector. A modified approach of Olley–Pakes and Levinsohn–Petrin methods involving three-digits industries over the fifteen major Indian states during the period 1998–2005 has been used to deal with the simultaneity issue of factor choice and market distortions for the better estimate. A positive and significant impact of openness on the productivity growth has been observed only when the market imperfections are eliminated. Moreover, the modified productivity growth, after controlling market imperfections, has turned out to be lower than that of the usual estimate in India.

List Price Information in the Negotiation of Commercial Real Estate Transactions: Is Silence Golden?

Abstract: We examine the use (and non-use) of list price information in the process of marketing commercial real estate. While housing market research suggests that list prices can serve as a strong anchor and/or signal, list price information is included in less than one-third of the commercial property sales and is less likely to be included as part of the sellers’ offering information for larger and more complex properties. Given the potentially powerful effect of list prices (first offers) on outcomes, the non-use of list price information is a puzzle. We speculate that the limited use of list prices may be due to the sellers’ interests in both maintaining their informational advantage and not truncating higher than expected offers, especially during periods of economic growth or with more complex properties. Using a two-stage selection correction model, we find that office properties which provide list price information are, on average, associated with lower price outcomes (ceteris paribus) and that these outcomes vary by price cohort and economic condition. It is important to note, however, that while these findings identify a correlation, they do not necessarily imply causation. Our results support the notion that asymmetric information and information signaling play a dominant role in explaining the sellers’ strategic non-use of list price information in the commercial real estate market and that the signaling effect is more pronounced in higher priced properties and during periods of strong economic growth.

Design of Financial Market Regulations against Large Price Fluctuations Using by Artificial Market Simulations

Abstract: We built an artificial market model and compared effects of price variation limits, short selling regulations and up-tick rules. In the case without the regulations, the price fell to below a fundamental value when an economic crush occurred. On the other hand, in the case with the regulations, this overshooting did not occur. However, the short selling regulation and the up-tick rule caused the trading prices to be higher than the fundamental value. We also surveyed an adequate limitation price range and an adequate limitation time span for the price variation limit and found a parameters’ condition of the price variation limit to prevent the over-shorts. We also showed the limitation price range should be bigger than a volatility calculated by the limitation time span.

Trade policy inconsistency and maize price volatility: an ARCH approach in Kenya

Abstract: The 2007-2008 food crisis and current food price swings led economists to re-evaluate the potential for policy instruments to manage food price volatility. When world prices are unstable, the use of import tariffs in importing countries to stabilize price is theoretically not the first best policy. But in practice many countries use import tariffs with intention to stabilize price - and other reasons-, which sometimes achieve some price stabilization, sometimes not. We address the question why is this policy sometimes a success and sometimes a failure? In the context of Kenya, we show that while domestic price levels are mainly explained by seasonal cycles, pluri-annual cycles, and international prices, domestic price volatility is mainly explained by inconsistent moves of trade policy. Thus, the ability of a policy regime to lower food price volatility does not depend on the nature of the policy instrument only, but also on the government ability to implement it. We define a consistent policy adjustment as a tariff decrease when world price increases and a tariff increase when world price is decreasing. We use an autoregressive conditionally heteroskedastic model of price determination in which prices and prices volatility are jointly estimated, using monthly data over the 1994-2009 period in Kenya.

Factor price overshooting with trade liberalization: theory and evidence

Abstract: This paper develops an intra-industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non-exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant-level data supports the idea of factor price overshooting with trade liberalization.