Showing papers on "Factor price published in 2014"

Quantifying the causes of the global food commodity price crisis

Abstract: The food commodity price inflation beginning in 2001 and culminating in the food crisis of 2007/08, and which returned in 2010, reflects a combination of several factors including economic growth, biofuel expansion, exchange rate fluctuations, and energy price inflation. To quantify these influence we developed an empirical model that also included crop inventory adjustments, a factor that is underemphasized in the literature. 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. Although our model explains most of the price fluctuation observed in 2001–2011, it is not able to explain all of it. 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 increase.

A Reference-Dependent Model of the Price–Quality Heuristic:

Abstract: People often use price as a proxy for quality, resulting in a positive correlation between prices and product liking, known as the “price– quality” (P–Q) heuristic. Using data from three experiments conducted at a winery, this article offers a more complex and complete reference-dependent model of the relationship between price and quality. The authors propose that higher prices set higher expectations, which serve as reference points. When expectations are met or exceeded, we observe the familiar P–Q relationship. However, when price is high and quality is relatively low, the product falls short of consumers' reference point and the P–Q relationship is reversed; thus, people evaluate a low-quality product with a high price more negatively than a low-quality product with a low price. Using the results of a field experiment, the authors discuss implications for pricing considerations and profitability.

The Economics of Food Price Volatility

Abstract: There has been an increase in food price instability in recent years, with varied consequences for farmers, market participants, and consumers. Before policy makers can design schemes to reduce food price uncertainty or ameliorate its effects, they must first understand the factors that have contributed to recent price instability. Does it arise primarily from technological or weather-related supply shocks, or from changes in demand like those induced by the growing use of biofuel? Does financial speculation affect food price volatility? The researchers who contributed to The Economics of Food Price Volatility address these and other questions. They examine the forces driving both recent and historical patterns in food price volatility, as well as the effects of various public policies in affecting this volatility. The chapters include studies of the links between food and energy markets, the impact of biofuel policy on the level and variability of food prices, and the effects of weather-related disruptions in supply. The findings shed light on the way price volatility affects the welfare of farmers, traders, and consumers.

Joint inventory and pricing decisions with reference effects

Abstract: This article considers a periodic review joint replenishment and pricing problem of a single item with reference effects. The demand is random and is contingent on the price history as well as the current price. Randomness is introduced with both an additive and a multiplicative random term. Price history is captured by a reference price, which is developed by consumers that are frequent buyers of a product or a service. The common reference price acts as a benchmark against which the consumers compare the price of a product. They perceive the difference between the price and the reference price as a loss or a gain and have different attitudes to these perceptions, such as loss aversion, loss neutrality, or loss seeking. A general way to handle the nonconvexity of the holding cost for nonlinear demand models is to make a transformation and use the inverse demand function. However, in reference price-dependent demand models, this brings the problem of a nonconvex action space. This problem is circumvented ...

Trading-Off Volatility and Distortions? Food Policy During Price Spikes

Abstract: This paper addresses to what extent governments have traded off price distortions for reduced volatility in intervening in agricultural and food markets during the recent food price spikes. We develop a model to derive how much distortions a government would introduce when it cares about stability in a situation with limited policy options. We show a trade-off and identify the optimal combination of distortions and stability for given international price shocks and interest groups preferences for stability. Empirical evidence shows that several countries have been able to reduce (short run) price volatility in the domestic markets while at the same time allowing structural (medium and long term) price changes to pass through to producers and consumers. However, this is not the general case. For many countries, even when explicitly taking into account the trade-off (and the benefits of reducing volatility) government policies appear far removed from the optimal trade-off and there appears to be much room for policy improvement.

Scholastic just price versus current market price: is it merely a matter of labelling?

Abstract: From an analytical point of view, some aspects of Just Price theory, probably the most famous and lasting scholastic concept, remain controversial: the cost-of-production versus the subjective-utility theory of value is a main controversy as well as the question of whether the natural just price is conceptually the same as the current market price. Strictly speaking, just price isconceptually the same as the current market price. Of concern is whether the meaning behind the label is the same in both scholastic and liberal traditions. There are different interpretations among scholars. One is that the just price is merely the current market price, and common estimation plays the same role as market forces in a competitive context. Another group states that the just price is quite different from the market price; the fundamental reason is that the ethical framework of the scholastic paradigm sets a corpus of principles that greatly differs from the neoclassical homo economicus. Is it possible to sp...

Sale of Price Information by Exchanges: Does It Promote Price Discovery?

Abstract: Exchanges sell both trading services and price information. We study how the joint pricing of these products affects price discovery and the distribution of gains from trade in an asset market. A wider dissemination of price information reduces pricing errors and the transfer from liquidity traders to speculators. This effect reduces the fee that speculators are willing to pay for trading. Therefore, to raise its revenue from trading, a for-profit exchange optimally charges a high fee for price information so that only a fraction of speculators buy this information. As a result, price discovery is not as efficient as it would be with free price information. This problem is less severe if the exchange must compensate liquidity traders for a fraction of their losses. This paper was accepted by Wei Xiong, finance.

The Just Price as the Price Obtainable in an Open Market

Abstract: This paper examines and criticizes the main conceptions of justice in pricing which have been put forward recently and argues that the price obtainable in an open market is the best standard for determining the justice or injustice of the price of a product or service. The paper argues that this standard, which is closely related to positions that have been held for hundreds of years, is not subject to the fundamental criticisms which can be addressed to other standards of justice in pricing. The paper also shows how this standard in grounded in more fundamental principles of justice such as desert and equality.

How Do Residents Respond to Price under Increasing Block Tariffs? Evidence from Experiments in Urban Residential Water Demand in Beijing

Abstract: Economic theory generally assumes that consumers respond to marginal price, which is the price of the last unit of goods consumed, when making economic decisions. However, this assumption may not hold for goods with multi-block rate schedules. This paper explores the effects of water price information on residents’ behaviors under increasing block tariffs. The empirical evidence from the study suggests the middle-income groups respond to average price, which is based on the price level given by total fees divided by total consumption. This evidence supports the hypothesis that the incremental block tariffs are actually treated the same as uniform pricing for the middle-income group, while the highest income group is not sensitive to price changes. On the contrary, residents of the two lowest income groups respond to marginal price and probably go further to compare prices of different blocks and set consumption at kink points of price schedules to achieve maximal welfare. This study also finds that a higher second block price promotes consumption at kink points, and increased payments in first block consumption lead to less incentive to induce discrete choice behavior.

Oil Price Pass-Through into Domestic Inflation: The Case of Iran

Abstract: Review of economic developments in Iran over the past four decades shows that oil revenues have deep and wide impact on economic indicators. The Two channels which oil price changes directly or indirectly affect inflation as the most important Economic variables are: increase in demand (mainly by government public budget and Influencing the components of monetary base and money supply) and increase in production costs (via the price of factors of production). In this regard, the present paper attempts to investigate the nature and causes of oil price pass-through into inflation in the short-and-long term; analysis of the pass-through and in addition design the necessary policies to control its destructive consequences. For this purpose, the Dynamic Error Correction Model was used and the data were collected monthly from 2003/3 to 2013/3. The findings showed that the oil price pass-through into inflation in both short-and-long term were Positive and incomplete. Therefore, it would be useful in policymaking. Keywords: Oil Price; Inflation; Pass-Through; Error Correction Model. JEL Classifications: C13; C22; E31; Q43.

Price Setting in Online Markets: Basic Facts, International Comparisons, and Cross-Border Integration

Abstract: We document basic facts about prices in online markets in the U.S. and Canada, a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible as well as exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than 2 months) in response to movements of the nominal exchange rate. Multiple margins of adjustment (frequency of price changes, direction of price changes, size of price changes, exit of sellers) are active in the process of responding to nominal exchange rate shocks. Furthermore, we use the richness of our dataset to show that degree of competition, stickiness of prices, synchronization of price changes, reputation of sellers, and returns to search effort are important determinants of pass-through and speed of price adjustment for international price differentials.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Focusing device as innovation mechanism and cluster growth

Abstract: This paper models a focusing device of innovation in which a cluster has an o-ring type production function and each technology component endogenously upgrades its quality. We show that provided the magnitude of innovation is the same across technology components, competitive equilibrium is an efficient mechanism by which core technology-driven innovations emerge with expanding inequality among clusters. Our result is in sharp contrast to bottleneck-removed innovation which is widely accepted. The inefficiency arises, however, when low-powered incentives, such as cost plus contracting, are employed to reward innovation. In this case, the corresponding factor price provides erroneous information regarding the potential benefits of innovation, which should be corrected by some form of policy intervention.

Electricity Market Price Volatility: The Importance of Ramping Costs

Abstract: Although electricity market price behavior generally has been well studied in the last decade, the literature is sparse when discussing the importance of generator ramping costs to price volatility. This paper contributes to the literature by first formalizing the intuitive link between ramping costs and price volatility in a multi-period competitive equilibrium. The fundamental result of the model shows how price volatility rises with ramping costs. This notion is tested empirically using a pooled event study regression, a two-stage least squares (2SLS) specification, and a generalized autoregressive conditional heteroskedasticity (GARCH) model. The econometric results all confirm that price volatility is significantly decreased by additional natural gas capacity, which has comparatively low ramping costs. This marks the first rigorous study to quantify the pecuniary externalities within the New England market's generating profile, showing over a million dollars worth of price stability provided per year by each new natural gas generator. A simulation also explores how this value changes over time, noting that value of price stability from natural gas generators will increase with the proportion of non-dispatchable renewable generators.

Raising food prices and welfare change: a simple calibration

Abstract: This article proposes a simple and straightforward method which only requires the information of expenditure share and the compensated own price elasticity to calibrate ex ante consumer welfare change due to price change, while specific price information is not required. It is applied to calculate the welfare loss due to recent food price inflation and find that recent food price inflation after January 2009 in the world causes 22%, 14% and 9% welfare loss, respectively, for low-, middle- and high-income countries.

The Research on the Impact of the Changes of Commodity Price Level in the World Commodity Exchanges on Variation of General Price Level

Abstract: . The purpose of the paper is to investigate the influence of changes of commodity price level in the world commodity exchanges on variation of general price level index in Lithuania. Object of the research is commodity price level in the world commodity exchanges. The methodology applied is following: study of the recent scientific literature, collection and analysis of statistical data, correlation regression analysis. The conclusion can be made that variation of general price level in Lithuania depends on changes of commodity prices in world commodity exchanges, mostly from the prices of aluminium, cocoa, coal and oil. Regression function made with analysed commodities is adequate to real situation and chosen variables X explain the 64% of inflation variability and 36% are explained by other factors. The results show that the determinate regression function could be practically used to forecast the dependence of inflation rate on the particular factors.JEL Classification: E31Keywords: general price level, inflation, commodity price, commodity exchange, market, Lithuania.(ProQuest: ... denotes formulae omitted.)IntroductionFor many years modern economies is facing significant problem of overall increasing general price level. During which the value of monetary unit falls and decreases its purchasing power - so called inflation appears. Inflation affects not only the area of prices, but directly and indirectly it touches the various areas of economic and social life, causing many negative consequences for country"s economic development.Commodity prices are volatile as well as most of commodity exchanges are volatile and dynamic. It affects the domain of specific fields, such as agricultural economics. For many financial institutions worldwide commodity trading has become an important mean to gain profit. Commodities nowadays are an important component of many investors' portfolios.One of the most influential factors affecting inflation rate is the price of production costs, from which mainly depends the final price of goods and services in a market. Therefore the price changes of the most important commodities in the world"s commodity exchange markets influence the price of local producers or imported production. This paper analyses the influence of price changes of commodities to general price level in Lithuania. The aim of the research is to analyze the variation of general price level in Lithuania and changes the prices of commodities in the world"s commodity exchange markets, identify the influence of the price changes of commodities on variations of general price level as inflation"s parameter. In order to achieve the aim correlation regression analysis was used. It allows to set the relation and establish the connection between price changes of commodities and general price level.1. Inflation and factors conditioning itRelative prices changes, income and assets are repartitioned among the different people and groups, indexes of national production and employment depart form the average during the inflation period. In such situation some are winners, some are losers. But these factors have an influence on the whole economy. The costs of inflation depend not only on its rate, but also on the expectation factor. When inflation is expected people may prepare better, and impact will be less painful (Snieska, 2006). It is important to notice that increase of prices of one product or several groups of products is not evaluated as inflation. Scientific and technological development and demand fluctuations allow the prices to increase and decrease. At the other hand change of prices of particular groups of products can be named as increase of price level. That is why the inflation and the change of price level are adequate terms when it comes to the growth of general price level. Some economists emphasize that the inflation is not onetime, but long term change of price level. …

Foreign Direct Investment, R&D Mobility and the New Economic Geography: A Survey

Abstract: This paper surveys several strands of the economics literature focusing on the international mobility of FDI in general, and the offshoring and outsourcing of R&D activities in particular. The paper outlines key findings, identifies common features and existing divergences and addresses the relevant research gaps emerging from the R&D offshoring and outsourcing literatures. The aim is to investigate the main drivers of R&D (re)location and the possible impact that the offshoring and outsourcing of R&D activities might have on the competitiveness and growth of both firms and countries. Factor price differences, trading costs, countries' size and openness, relative skill endowments, productivity differentials, completeness and enforceability of contracts, knowledge production and spillovers and IPR regimes all shape foreign sourcing and the specific R&D location patterns that emerge. The overall impact of offshoring and outsourcing in general—and of R&D in particular—cannot be seen in isolation, as it is part of more complex globalisation dynamics.

Adam Smith’s Natural Prices, the Gravitation Metaphor, and the Purposes of Nature

Abstract: Adam Smith's 'natural price' has long been interpreted as a 'normal price' or 'centre of gravitation price' based on the famous gravitation metaphor of the Wealth of Nations I.vii, natural in the sense that it is the price that would result if competition were truly free, unobstructed by monopoly or government regulation, and could also therefore be called normal price, appealing to a sense of natural opposed to that which is produced artificially. This essay has three purposes. First I criticise this interpretation of Smith's gravitation metaphor. For Smith, it is not a Newtonian metaphor for the attractive character of natural price, but rather an Aristotelian metaphor for the pattern of movement of market prices, in which natural price serves merely as a reference point. Second I present an interpretation of Smith's natural price based on his understanding of nature, in the context of his assertions that the goals of nature are the self-preservation of individuals and the propagation of species, goals humans pursue with divided labour under bonds of mutual dependence, facilitated by exchange and hence prices. The natural price of a commodity is the price that supports nature's goals by providing for the maintenance of those who participate in production and supply in a manner that is just sufficient for these activities to continue indefinitely. Third I highlight the similarity between natural prices construed in this way and the prices of Piero Sraffa's Production of Commodities by Means of Commodities.

The Determinants of Sticky Prices and Sticky Plans: Evidence from German Business Survey Data

Abstract: So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm-level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time- and state-dependent variables, we find that state-dependence is important; the macroeconomic environment as well as the firm-specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.

A consistent set of multilateral productivity approach-based indicators of price competitiveness

Abstract: We propose a novel, multilaterally consistent productivity approach-based indicator to assess the international price competitiveness of 57 industrialized and emerging economies. It is designed to be a useful assessment tool for monetary policy authorities and, thereby, differs from previously proposed indicators, which are hardly applicable on a day-to-day basis. Special attention has been paid to an appropriate selection of price and productivity data in levels as opposed to indices, and to the treatment of country fixed effects when interpreting currency misalignments. The discussion of the results focuses on the larger economies of the sample. At the current juncture, and in contrast to the prevailing view, we find US price competitiveness to be above and China’s price competitiveness to be below its derived benchmark.

Intertemporal Price Discrimination via Reference Price Effects

Abstract: We consider the dynamic pricing problem a monopolistic seller faces when customers arrive in heterogeneous time periods and their purchase decisions are affected by reference prices formed from their past purchase experiences. We illustrate that a new form of price discrimination opportunity exists in such situations, where the seller’s optimal pricing strategy is a cyclic one, even when the customers are loss-neutral and their demand functions are identical. This result differs from those in prior studies where the optimal price paths are shown to be asymptotically constant when customer arrival times are homogeneous or when there are no reference price effects, thus is unique due to the interaction between the heterogeneous arrivals and the reference price effects. We also provide the length of the cycle when the demand function is linear. In this era where customer information becomes easier accessible, our results suggest the seller consider this new dimension of price discrimination in conjunction with the old ones, in order to take advantage of the full power of customer data.

Price promotions and their effect upon reference prices

Abstract: Purpose – The purpose of this study is to resolve inconsistencies in the literature about how one-time price promotions affect reference prices Specifically, this study suggests that the measure of reference price used within a study (eg expected price or fair price) can affect the outcomes of that study Design/methodology/approach – This research uses three separate experiments, replicating and extending existing work, to simulate purchasing decisions for products in the context of a price promotion Experiments allow careful control of the confounds presumed to cause the inconsistencies between studies Findings – Study 1 shows that measurement of different reference prices within the same experiment leads to carryover effects, which inflate the correlation between measures Expected price and fair price appear to be conceptually and empirically distinct and should be measured separately to reduce design artifacts Study 2 shows that one-time price promotions affect fair price, but not expected pric

Price Differentiation as Economic and Mathematical Model of Increasing the Competitive Power of a Company

Abstract: The paper considers economic events associated with price formation, namely methods of price differentiation in conditions of market competition, certain ways conducing to meeting the demands of different strata of the population with different consumer opportunities are indicated.