Showing papers on "Factor price published in 2016"

Joint pricing and advertising strategy with reference price effect

Abstract: Consumers are susceptible to reference price effects when they make purchase decisions for a certain product. Meanwhile, the sales price and advertisement are the determinable factors that have impact on consumers’ reference price which are also fundamental marketing strategies. Therefore, how to determine an appropriate sales price and advertising effort level to maximise firms’ profits is an essential task. A joint pricing and advertising problem for a monopolistic firm with consideration of reference price effect is investigated, where consumer demand rate is price-sensitivity and depends on the gap between the sales price and the reference price in consumers’ mind. An optimisation model is established to maximise the firm’s total profit by making a joint pricing and advertising strategy. The static and dynamic joint strategies are obtained by applying Pontryagin’s maximum principle. Results show that the dynamic strategies dominate the static ones. Furthermore, the dynamic pricing and dynamic advertis...

The Impact of Demand and Price Expectations on the Behavior of Prices

Abstract: The effects of demand and price expectations on price behavior are analyzed, using data from the manufacturing sector and a model formulated to pinpoint the demand-oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior. The expected normal demand is seen to have a strong and systemic influence on price behavior. The expected normal level of new orders is found to be an adequate measure with sector data in general, although some industries require more specification. The effects of inventories and unfilled orders on prices are sporadic and across sectors and industries. Demand-oriented forces are concluded to perform as well statistically as cost-push determinants. Expectations concerning the current normal industry price level have a significant and consistent impact on price behavior. This supports the idea that firms setting prices take into account their estimates of competitor's prices. Future price expectations appear to have little effect on current price information. 15 references.

Price promotion with reference price effects in supply chain

Abstract: We consider the price promotion in a supply chain comprising one manufacturer and one retailer, who take into account the reference price effects of consumers. The problem is analyzed as a manufacturer-lead Stackelberg game. The results indicate that reference price effects could mitigate “double marginalization” effects, and improve the channel efficiency. We also show that the optimal price promotion benefits the manufacturer, retailer and consumers in consumer promotion model. Furthermore, we provide the conditions under which the retailer has an interest in offering price promotion to consumers. Finally, we employ numerical analysis to demonstrate more managerial insights.

The Theory of the Firm in "Long-Run" Equilibrium

Abstract: In a recent series of articles,' economists have investigated the comparative statics of the "neoclassical" firm in a competitive environment with the specific proviso that output price adjusts in response to changes in factor prices. The older theory of the firm, such as is found, for example, in Paul Samuelson (1947), is deficient in this regard. Metaphors such as "short run" have been used to gloss over the inconsistency of holding output price constant in the face of changing costs through changing factor prices. In this paper, a simple yet thorough analysis of a firm in a competitive industry, i.e., a firm facing zero entry and adjustment cost conditions, is given. New results pertaining to restrictions on the behavior of such firms are offered. Also, the length and complexity of established results is substantially reduced.

Microbes and markets: was the black death an economic revolution?

Abstract: Recent papers have suggested that the Industrial Revolution in Europe ultimately derives from the labor scarce economy of northwest Europe, which some trace back to the Black Death [Voigtlander and Voth (2013a) and Allen (2011)]. This paper examines the effects of the Black Death in England. Specifically, did it merely change relative factor prices, or did it lead to lasting gains in the efficiency of the economy after 1348? Extensive wage and price data from England 1210–1800 suggest that the population losses of the Black Death were associated with a surprising increase in economic efficiency, despite the decline in the scale of the economy. But this efficiency gain disappeared when population rose again in the 16th century. There is no sign of a connection between a labor scarce economy, and a switch to faster long run economic growth through technological advance.

Price transparency and retail prices: : Evidence from fuel price signs in the italian highway system

Abstract: Price transparency initiatives are typically undertaken by third parties to ensure that consumers can compare the prices of competing offers in markets in which obtaining such information is costly. Such practices have recently become widespread, yet it is unclear whether the increased price competition due to lower search costs overcomes the potential for collusion between competitors due to lower price coordination costs. Motivated by this question, the authors investigate the effect of mandatory price posting (on large electronic signs) on the pricing behavior of competing gas stations in the Italian highway system . The authors find that when prices are posted, the average price of gasoline decreases by 1 euro cent per liter, which represents about 20% of stations’ margins. About half the price decrease can be attributed to the introduction of a sign posting a station’s own price and those of its nearest neighbors, with the other half due to the introduction of other signs posting the prices o...

Price flexibility and full employment: barking up the wrong (neoclassical) tree

Abstract: This paper (a revised version of Strathclyde Paper 2004-07) questions the thesis (again in fashion) that price flexibility ensures full employment. (See most standard macro textbooks.) We make the point that explanation of unemployment in terms of price/wage stickiness typified much pre-Keynesian analysis, but not Keynes’s theory of involuntary unemployment. Under uncertainty - an essential aspect of the Keynes conception - no set of prices consistent with full employment may actually exist: if so, price inflexibility is not the critical obstacle to the attainment of full employment. Finally, with respect to current use of the AD/AS model, we note that once-rejected ideas have returned to the mainstream and that the strong arguments against attribution of necessarily beneficent effects to price and wage flexibility, which ought to be well-known, seem now to be forgotten.

A Small Step from Price Competition to Price War: Understanding Causes, Effects and Possible Countermeasures

Abstract: The first part of this paper describes the characteristics of price wars, pointing to recent examples that have caused a stir among the public as well as in the respective industries. A new, concise definition of the term price war is suggested. In the second part drivers for price wars are discussed and explained based on behavioral economics (understanding the competitor’s strategy as well as a company’s own cost situation). Particularly in industries that are characterized by a high proportion of costs that are unchangeable in the medium-term and low variable costs there is a substantial risk for unintended price competition possibly ending in a price war. Even slight price reductions can have fatal consequences when decision makers mistakenly estimate the price elasticities too high. In the third part a case study of a price war is presented by focusing on the market of long-distance bus journeys in Germany. Since the market for intercity bus connections was liberalized in 2013, the newly created market segment faces a very strong growth and intensive competition. Using a multi-source-multi-method-approach it is shown how the market entry of UK-based company Megabus affected price levels for bus journeys und initiated competitive reactions of the German railway operator Deutsche Bahn. The interaction of various parameters (low barriers to enter the market; high similarity of products/services; fixation on market share and capacity utilization) leads to a ruinous price competition and leaves few chances for a sustainable profitability. Measures to avoid an impending or to terminate an ongoing price war are presented.

Does Female Labor Scarcity Encourage Innovation?: Evidence from China's Gender Imbalance

Abstract: Facing scarcity of a production factor, a firm can develop technologies to either substitute the scarce factor (price effect) or complement the more abundant factors (market size effect). Whether the market size effect or the price effect dominates largely depends on the elasticity of substitution among factors according to the theory of directed technical change. However, it is a great challenge to empirically test the theory because factor prices are often endogenously determined. In this paper, we use imbalanced sex ratios across Chinese provinces as a source of identification strategy to test how female labor scarcity affects corporate innovation based on the matched dataset of annual surveys of industrial firms in China and the national patent database. In regions with a large male population, female-intensive industries face more serious problems finding female workers than their male-intensive counterparts. We find that such female shortages have spurred firms in female-intensive industries to innovate more. The pattern is much more evident in industries with low substitution between female and male workers than in those with high substitution, consistent with the predictions of directed technical change theory.

Price and lead time differentiation, capacity strategy and market competition

Abstract: We study a duopoly market in which customers are heterogeneous, and can be segmented as price or time sensitive. Each firm tailors (differentiates) its products/services for the two customer classes solely based on guaranteed lead time and the corresponding price. Our objective is to understand how competition affects price and lead time differentiation of the firms in the presence of different operations strategy (shared versus dedicated capacity), product substitution and asymmetry between the competing firms. Our results suggest that when firms use dedicated resources to serve the two market segments, pure price competition always tends to decrease individual prices as well as price differentiation, irrespective of the market behaviour. Further, the effect of competition is more pronounced when customers are allowed to self-select, thereby introducing substitutability between the two product options. On the other hand, when firms compete in time, in addition to price, the effect of competition on produ...

Price Promotions in Choice Models

Abstract: Promotions are used in marketing to increase sales and drive profits by temporarily decreasing the price per unit of a good. Some price promotions apply to all quantities (20% off), some have limits on the number of units that can be purchased at a reduced price, and others only offer the discount if the volume purchased is sufficiently high. We develop a model of price promotions in the context of a direct utility model where its effects are incorporated through the budget constraint. Price promotions complicate the estimation and analysis of direct utility models because they induce kinks and points of discontinuity in the budget set. We propose a Bayesian approach to addressing these irregularities and demonstrate the ability of the direct utility model to be used in counterfactual analyses of price promotions. We investigate the stability of utility function estimates for consumers under alternative price promotions, and find that the majority of the effect of a price promotion is through the budget s...

The economic reasons for price and entry regulation of taxicabs

Abstract: In recent papers in this journal Professor Shreiber (1975, 1977) has supplied an appealing model of determination of price and waiting time in unregulated taxicab markets, which he concludes would produce a large number of cabs, a short waiting time for customers, and high fares. This scenerio, along with Shreiber's implicit belief that his pure cruising taxi market is representative of real world taxi markets, allows him to advocate price regulation to achieve a satisfactory relationship between price and availability. The validity of Shreiber's analysis depends on the following assumptions: A. When price is below Shreiber's zero waiting time price, cab owners are unable, except by chance, to generate situations where consumers can compare the price of vacant taxis in the vicinity. B. Taxicab owners, whatever price they charge, are unable to transmit inform ation to prospective customers as to their location in any geographical area, and vice versa. C. Cruising is the only form of cab operation, and other modes of passenger transport are not sufficiently close substitutes to influence the price of cabs. D. Even when price is high enough to generate close to zero waiting times, there is no incentive for large entrepreneurs to enter the industry and combine a large fleet with a lower market price in an attempt to capture a significant share of the market. The failure of any one of these assumptions can be expected to generate forces of price competition in a taxicab industry free of price and entry regulation.

Global Demographic Trends: Consumption, Saving, and International Capital Flows

Abstract: In this chapter we review the recent literature on the effects of changing global demographic trends on consumption, factor prices and social security. We also construct an overlapping generation model with four regions of the world. The model is calibrated so that we match some basic statistics of the last few decades. We assume that the model was in a steady state in 1990, input projected demographic trends, which converge to common values across regions by 2200, and make suitable assumptions on productivity profiles and total factor productivity. This allows us to study the evolution of factor prices, current accounts, and welfare during the transition and explore the differences between open and closed economies, when we limit factor mobility to capital mobility and make different assumptions about future trends in demographics and productivity.

How consumers respond to missing a quantity discount with multiple price breaks

Abstract: This study investigates how consumers evaluate and respond to different discount schemes (i.e., one versus multiple price breaks) in the wake of a missed quantity discount. Two field experiments are conducted. The results demonstrate that promotions with multiple price breaks (e.g., 2 for 30% off and 3 for 40% off) will result in a higher likelihood of purchasing one item at the regular price than promotions with only a single price break (e.g., 2 for 30% off) when a quantity discount is missed. The results of Experiment 2 reveal that increasing the number of price breaks (i.e., from two to three) can strengthen the assimilation of the advertised regular price into consumers' internal reference price range when there is a greater interval between the two price breaks (e.g., 2 for 30% off, 5 for 40% off, and 8 for 50% off) and that subsequently raises consumers' purchase likelihood if they are not able to take advantage of the promotional price. Finally, the effect of the discount scheme on purchase likelihood is shown to be mediated by the internal reference price. These observations have important implications for retailers. Copyright © 2016 John Wiley & Sons, Ltd.

Price signals and supply responses for staple food crops in SSA countries

Abstract: Several studies have focused on estimating the supply response of farmers in Sub Saharan Africa.This literature has used a variety of approaches and has generally concluded that price elasticities of supply were low or very low. However, only a few analyses have gone beyond estimating the aggregate supply response for the sector as whole or the specific case of cash crops. In most cases, data scarcity especially on producer prices has been the main limiting factor. In this paper, we revisit this question focusing on the supply response of main staple food crops in selected Sub Saharan African (SSA) countries. We use an innovative dataset recently developed by FAO's "Monitoring and Analysing Food and Agricultural Policies" (MAFAP) programme which provides prices at the producer, wholesale, and border levels for selected value chains. Using dynamic panel techniques, we are able to test how acreage, production and yields respond to price signals and other non-price factors over the recent food price crises (2005-2013).We observe that farmers producing staple food crops react to real price signals, even if with a limited intensity. Moreover, our results suggest that direct price incentives arising from border protection and government intervention in domestic markets and price shocks at the border are more important than macroeconomic policies in influencing farmers' decisions. We also show that omitting marketing costs from the supply response function leads to underestimation of the price elasticity. Conversely, using wholesale instead of farm gate prices as proxy for producer prices leads to overestimation of the price elasticity.

Does a Higher Frequency of Micro-level Price Changes Matter for Macro Price Stickiness?: Assessing the Impact of Temporary Price Changes

Abstract: Even though prices at the macro level in Japan, like in Europe and the United States, are sticky, individual prices as measured in micro data change frequently. The reason for this puzzle, it has been argued in the context of the United States, is the presence of temporary price changes due to sales and other promotions. In other words, the impact of temporary price changes on the inflation rate is negligible, since some price cuts during sales are cancelled out by other price rebounds from the previous sale prices. The hypothesis thus is that what affects macro-level inflation is not temporary price changes but changes in regular prices, which change only infrequently and hence are responsible for sticky prices at the macro level. We investigate this hypothesis using the micro data underlying Japan's consumer price index (CPI) and find that, in general, that the hypothesis is supported in Japan's case. Unlike in the United States, however, the frequency of temporary price changes has trended upward since the 1990s, so that the impact of temporary price changes on the inflation rate has gradually increased. If this development were to continue, it could lead to greater elasticity of the inflation rate in the future.

How source of funds affects buyer’s judgments of price fairness and subsequent response

Abstract: Purpose This research aims to examine how source of funds (paying with company’s funds versus personal funds) affects buyer’s judgments of price fairness and via these judgments, buyer’s response to prices. Design/methodology/approach A scenario-based experiment is used (N = 200). To test the hypotheses, the authors run moderated mediation regression analyses with the help of the PROCESS macro. Findings Drawing on fairness heuristics theory, the authors hypothesize and find that relative to when paying with personal funds, when paying with company’s funds, the perceived price difference plays a less significant role, whereas the perceived social acceptability of the pricing practice underlying the price difference plays a more important role in shaping price fairness judgments and, via these judgments, buyer’s response to prices. Practical implications The findings generate advice for companies that serve both the business and personal segments (e.g. airlines and hotels). Buyers in the personal segment typically pay with their own money. To persuade these buyers that a price is fair, it is crucial to show that the price represents a good deal for them. Buyers in the business segment often pay with company’s fund. Companies have more flexibility in charging different prices, but they should make sure that the reasons for the price difference are socially acceptable. Originality/value This research shows how the relative role of price difference versus social acceptability in price fairness judgments varies as a function of source of funds and how an inconsistency between price difference and its economic impact affects price fairness judgments.

Dynamic pricing with reference price dependence

Abstract: A firm that accounts for consumer behavior sets the selling price of a product considering the reference price of consumers. In the literature, a reference price is usually modeled as depending on past selling prices. That is, past selling prices implicitly constrain the current selling price of a product. In this article, the author explicitly measures this constraint with an optimal control framework. He works on the structural properties of a general demand function, which depends on both selling and reference prices. Analytical results prove the following claims. Adjusting reference prices effects increase the price elasticity of demand, the demand function becoming flatter. Thus, the reference price effect weakens the market power of the firm. Also, the reference price effect constitutes a main driver of the dynamics of the selling price. But contrary to intuition, selling price dynamics does not systematically imitate reference price dynamics.

Dynamic pricing with reference price dependence

Abstract: A firm usually sets the selling price of a product by taking into account consumers' reference price. A behavioral pricing scheme integrating reference effects would suggest that the higher the reference price, the higher the firm can set the price. In this paper, the author investigates this intuition by accounting for reference dependence in an optimal control framework. Results show that the dynamics of price originates from the sensitivity of customers to reference price. Contrary to intuition, price dynamics is not systematically associated to the evolution of the reference price, but derives from competing effects related to the dynamics of the reference price.

Optimal allocation of a fixed production under price uncertainty

Abstract: In this paper, we consider a model of production allocation in the context of the theory of the firm under uncertainty This is the case of a firm that has just produced a known amount of an output and can allocate it to two possible ends: one with a certain price, the other with an uncertain price We first establish conditions to determine whether the firm will make use of both ends or of only one of them In particular, we find a limit value for the certain price (which we call the frontier price) below which the firm decides to allocate the total amount of production to the uncertain end We then study comparative-static effects on the optimal output allocated to each end, and also on the frontier price Finally, we analyze an application concerning the middleman who buys the firm’s output in the certain end This is a pricing problem: namely obtaining the price in the certain end that the middleman must offer to the producer in order to attain a desired amount of output In two specific cases, we also provide closed-form expressions for the optimal allocation to both ends and for the frontier price

Revisiting the relationship between price stickiness and the non-neutrality of money

Abstract: By lots of economists and central banks, price stickiness is believed to be the main factor which brings about the non-neutrality of money. Based on the belief, most of the New Keynesian models are developed to feature price stickiness in order to make the real effect of money. Among those, the Calvo pricing has been the most popular framework in featuring the sticky price. This thesis investigates whether the non-neutrality of money is always guaranteed by the Calvo-type price stickiness or not. In particular, the focus lies on the effect of volatility of firms’' optimal prices on the relationship between price stickiness and the non-neutrality of money. Chapter 1 presents the theoretical possibility of the non-relationship between the two phenomenons in such case that repricing firms’' optimal prices are very volatile, and the following two chapters propose more micro-founded endogenous frameworks to deliver the results which support the argument in Chapter 1. It is shown in Chapter 1 that high volatility of reset prices has the same effect as that of lowering the degree of price stickiness and increasing the future discount factor in the standard Calvo framework. Due to the effect, it can be illustrated that the aggregate price level can be flexible even when some firms’ maintain the previous price level if the other repricing firms' prices respond very elastically to monetary shocks. Chapter 2 proposes a model in which repricing firms’ behave as in collusion and exploit the information on aggregate price dynamics by taking the aggregate price as a function of their own price at the process of optimization. It is shown that the colluding firms set much higher prices for monopoly gains against positive monetary shocks, and therefore, the aggregate price level can be very responsive even with price stickiness of the rms. Lastly, Chapter 3 presents the case where firms have no information on other firms' pricing behaviours and have expectations on average reset price with bounded rationality. The model of this chapter demonstrates that the realized level of average reset price of the firms can be much higher than that of the standard model when their expectations are heterogeneous. All the results of the chapters imply that the monetary policy might not be able to have the real effect even with price stickiness if firms’ reset prices show very volatile movements. Therefore, economists and central banks should research more on the volatility of firms' reset prices when analysing monetary policy and also try to find other factors which might have direct relationship with the rigidity of aggregate price, rather than price stickiness which focuses just on individual prices, when developing a monetary model.

Evaluating consumer price perception : a mental accounting and frame dependent perspective

Abstract: In this thesis, we evaluate consumer purchase behaviour from the perspective of heuristic decision making. Heuristic decision processes are quick and easy mental shortcuts, adopted by individuals to reduce the amount of time spent in decision making. In particular, we examine those heuristics which are caused by framing – prospect theory and mental accounting, and examine these within price related decision scenarios. The impact of price framing on consumer behaviour has been studied under the broad umbrella of reference price, which suggests that decision makers use reference points as standards of comparison when making a purchase decision. We investigate four reference points - a retailer's past prices, a competitor's current prices, a competitor's past prices, and consumers' expectation of immediate future price changes, to further our understanding of the impact of price framing on mental accounting, and in turn, contribute to the growing body of reference price literature in Marketing research. We carry out experiments in which levels of price frame and monetary outcomes are manipulated in repeated measures analysis of variance (ANOVA). Our results show that where these reference points are clearly specified in decision problems, price framing significantly affects consumers' perceptions of monetary gains derived through discounts, and leads to reversals in consumer preferences. We also found that monetary losses were not sensitive to price frame manipulations.

Duopoly price discrimination with monopolization energy input

Abstract: This research focuses on price discrimination policy in a duopoly market structure of firms purchasing energy from a monopolist supplier. The results indicate that the price discrimination of energy reduces social welfare and harms efficient firms, helping explain bans on price discrimination. Firms with lower efficiency benefit from price discrimination, while firms with higher efficiency suffer. Although the profits of efficient producers are reduced under price discrimination, the monopolist energy supplier is prone to price discrimination. The results from this research indicate that price discrimination for energy input is irrational.