Showing papers on "Factor price published in 2017"

Fueling the US Economy: Energy as a Production Factor from the Great Depression until Today

Abstract: We analyze the relationship between factor augmenting technical change and factor substitution through a nested CES function using capital, labor, and energy inputs. We use US aggregate data on output, factor use, and factor prices for the years 1929–2015 to show the interdependence and coevolution of the different input factors. We demonstrate the robustness of the system of equations approach for estimating such a production function. We find that the input factors are gross complements, and that in the time period considered, technical change was mostly labor saving, while the linear time trend of energy augmenting technical change was zero.

Managing Posterior Price Matching: The Role of Customer Boundedly Rational Expectations

Abstract: The posterior price-matching policy, whereby a firm promises to reimburse the price difference to a customer who purchases a product before the firm marks it down, has been used in practice The extensive literature has offered the following explanations for why posterior price matching is adopted: to reduce inventory, to soften competition, to price discriminate consumers, and to eliminate consumer strategic waiting incentives In this paper, we provide a novel explanation and investigate the role of consumer bounded rationality in the sense of anecdotal reasoning We adopt a simple model that allows us to isolate the role of customer bounded rationality on using posterior price matching We demonstrate that while it is never optimal to adopt posterior price matching when consumers have rational expectations, it can be optimal when they have boundedly rational expectations We show when and how a seller can intentionally mark down with some probability and adopt price matching to make a profit Ignoring customer bounded rationality can result in a significant profit loss Then, we build a dynamic programming model to investigate how the firm should dynamically manage its markdowns over the long run We show that a cyclic policy switching between a high and low markdown probability is typically optimal for exploiting customer bounded rationality We characterize the nature of the cyclic policy and the range in which it is optimal Our findings underscore the importance of consumer bounded rationality and provide managerial and practical guidelines on how to manage price matching when customers are boundedly rational The online supplement is available at https://doiorg/101287/msom20160612

Fueling the US Economy: Energy as a Production Factor from the Great Depression until Today

Abstract: We analyze the relationship between factor augmenting technical change and factor substitution through a nested CES function using capital, labor, and energy inputs. We use US aggregate data on output, factor use, and factor prices for the years 1929–2015 to show the interdependence and coevolution of the different input factors. We demonstrate the robustness of the system of equations approach for estimating such a production function. We find that the input factors are gross complements, and that in the time period considered, technical change was mostly labor saving, while the linear time trend of energy augmenting technical change was zero.

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 input 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 input demand, while an increase in expected energy price will surely cause the risk-averse firm to decrease the demand for energy, but increase the demand 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. We also show that the concepts of elasticity and decreasing absolute risk aversion (DARA) play an important role in the comparative statics analysis.

Revisiting the residential electricity demand in the United States: A dynamic partial adjustment modelling approach

Abstract: In recent years, price policies and price changes derived from environmental regulations have played a more important role to promote residential energy conservation. Using recent annual state-level panel data for 48 states, we estimate a dynamic partial adjustment model for electricity demand elasticities on price and income in the residential sector. Our analysis reveals that in the short run, one unit price increase will lead to 0.142 unit of reduction in electricity use after controlling for the endogeneity of electricity price. Thus, raising energy price in the short run will not give consumers much incentive to adjust their appliances to reduce electricity use. However, in the long run, one unit price increase will lead to almost one unit consumption reduction, ceteris paribus . In addition, we find new evidence that for states of higher per capita GDP, raising the electricity price may be more effective to ensure a cut in consumption.

Why offer lower prices to past customers? Inducing favorable social price comparisons to enhance customer retention

Abstract: Price discrimination policies vary widely across companies. Some firms offer new customers the lowest price; others give preferential prices to their past customers. We contribute to the literature on price discrimination in behavior-based pricing by exploring how customers’ social price comparisons, i.e., comparing one’s price to that received by similar peers, impact the optimal structure of price discrimination. Social price comparisons have a negative (positive) impact on customers’ transaction utility if the price charged to past customers is higher (lower) than a new customer’s price. Using an analytical model with vertically differentiated firms, we show that a firm with relatively large market share will reward its past customers with relatively low prices when social price comparisons have a sufficiently large impact on utility. Furthermore, we find that social price comparisons lead to a relaxation of the price competition for new customers. Thus, both firms can earn higher profits when such comparisons are made than when they are absent. We also examine how other factors, such as horizontal competition and strategic customers, interact with social price comparison concerns to impact pricing strategies. Finally, we show how pricing behavior differs when price comparisons are based on historic reference prices rather than on peers’ prices.

Digital fixation: the law and economics of a fixed e-book price

Abstract: Fifteen OECD countries, ten of which EU members, have regulation for fixing the price of printed books. At least eight of these have extended such regulation to e-books. This article investigates the cultural and economic arguments as well as the legal context concerning a fixed price for e-books and deals with the question of how the arguments for and against retail price maintenance for e-books should be weighted in the light of the evidence. It concludes that while the evidence in defence of a fixed price for printed books is slim at best, the case for a fixed price for e-books is weaker still while the legal acceptability within EU law is disputable. Against this background, introducing a fixed price for e-books is ill-advised.

Do Different Price Points Exhibit Different Investment Risk and Return in Commercial Real Estate

Abstract: Conventional real estate price indexes provide a single measure for the path of asset prices over time (controlling for the quality of the representative or average property). Properties could, however, have different price dynamics based on the price segment in which they are traded. On the demand side, investors at different price points are differentiated by the amount of capital they have at their disposal and the type and source of financing. Smaller, private investors cluster at lower price points, whereas large institutions dominate the high price points. On the supply side, properties at different price points may serve different space markets with different types of tenants and may reflect different supply elasticity and land/structure value ratios. In this article, the authors use an unconventional approach, quantile regression, to estimate price indexes for different price segments in commercial real estate. Their results show that there are indeed large differences in price dynamics for different price points. These differences are suggestive of a lack of integration in the property asset market because the authors find apparent differences in the risk–return relationship. Lower-price-point properties exhibit less risk (in the form of volatility and cycle amplitude) but have no evidence of lower total returns. Lower-price-point properties also show greater momentum and thus greater predictability.

Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol

Abstract: It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view.

Domestic Market Integration and the Law of One Price in Brazil

Abstract: This article presents the first assessment of domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law holds for most tradable products and, not surprisingly, nontradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.

A Rebalancing Chinese Economy: Drivers and Challenges

Abstract: This paper presents macroeconomic evidence that a rebalancing from a lop-sided investment- and export-driven pattern of growth towards more consumption-driven growth is already occurring in China, supported by a declining return to capital and a now-rising labour share of income. We argue that the extraordinary strength of Chinese household consumption in recent years casts doubt on hypotheses that Chinese consumption has been repressed through factor price distortions. Based on evidence from China’s flow-of-funds accounts, we also contend that conventional analysis has understated the role of investment by households in supporting growth of gross fixed capital formation in recent years. While recent discussions stress the need to reform financial markets to foster rebalancing, we argue that rebalancing will probably happen anyway as a natural outcome of dwindling income windfalls from worsening demographics, fading positive productivity shocks and maturing housing markets, all of which helped drive the imbalances in the first place. An analysis of historical ‘rebalancing’ episodes in other economies further suggests that the bulk of adjustment in coming years is likely to occur through slowing investment rather than an increase in the growth rate of consumption.

Endowments, Skill-Biased Technology, and Factor Prices: A Unified Approach to Trade

Abstract: We develop a multi-factor, multi-sector Eaton-Kortum model in order to examine the impact of trade costs, factor endowments, and technology (both Ricardian and factor-augmenting) on factor prices, trade in goods, and trade in the services of primary factors (value-added trade). This framework nests the Heckscher-Ohlin-Vanek (HOV) model and the Vanek factor content of trade prediction. We take the model to the data using skilled and unskilled data for 38 countries. We have two findings. First, the key determinants of international variation in the factor content of trade are endowments and international variation in factor inputs used per dollar of output. Input-usage variation in turn is driven by (1) factor-augmenting international technology differences and (2) international factor price differences. Second, our estimates of factor-augmenting international technology differences — which imply cross-country variation in skill-biased technologies — are empirically similar to those used to rationalize cross-country evidence on income differences and directed technical change.

A conduct parameter model of price discrimination

Abstract: We consider a conduct parameter model where firms price discriminate based on the consumers’ willingness to pay. For any conduct, the average price is invariant to the extent of price discrimination. Moreover, when the number of prices goes to infinity, there is a linear relationship between market power, measured by conduct, and range of offered prices. Hence, when the firms face competition, some of the high valuation customers are charged below their valuations, which contrasts with perfect price discrimination results for a monopoly.

Dead Poets’ Property - How Does Copyright Influence Price?

Abstract: This article exploits a differential increase in copyright length under the UK Copyright Act of 1814 - in favor of books by dead authors – to examine the effects of longer copyright terms on price. Difference-in-differences analyses, which compare changes in the price of books by dead and living authors, indicate a 50 percent increase in price in response to doubling of copyright length. By comparison, placebo regressions for books by dead authors that did not benefit from the extension indicate no differential increase. Historical evidence suggests that longer copyrights increase price by improving publishers’ ability to practice intertemporal price discrimination.

Price Mechanism and Energy Efficiency: Evidence from ten countries

Abstract: Weida He, Chuan Zhang*, Rong Hao and Kai Zhang Donlinks School of Economics and Management, University of Science and Technology Beijing,No.30, Xueyuan Road, Haidian District, Beijing, 100083, P R China China Nonferrous Metal Industry's Foreign Engineering and Construction Co., Ltd, NFE Building, 10 Anding Road, Beijing, 100029, PR China Luoyang Normal University Business College, No.71, Longmen Road, Luoyang, Henan, 471023, P R China

Customer perspectives on district heating price models

Abstract: In Sweden there has been a move towards more cost reflective price models for district heating in order to reduce economic risks that comes with variable heat demand and high shares of fixed assets. The keywords in the new price models are higher shares of fixed cost, seasonal energy prices and charging for capacity. Also components that are meant to serve as incentives to affect behaviour are introduced, for example peak load components and flow components. In this study customer responses to these more complex price models have been investigated through focus group interviews and through interviews with companies that have changed their price models. The results show that several important customer requirements are suffering with the new price models. The most important ones are when energy savings do not provide financial savings, when costs are hard to predict and are perceived to be out of control.

Is reference price a fair price or an expected price

Abstract: There is general agreement that reference price moderates consumer price response. This study primarily explores the meaning of reference price to consumers. Reference prices under alternate definitions are elicited from respondents for multiple shopping scenarios in an experimental setting. The influence of past and competitive prices on reference price formation is also analyzed using linear regression. The meaning consumers attach to reference price is inferred by analyzing choices based on each definition using logistic regression. The results suggest that consumers may better understand reference price as a fair price rather than as an expected price while making a purchase decision.

Price protection policies with demand uncertainty and strategic consumers

Abstract: Purpose This paper aims to study a retailer’s decision on the price and inventory when facing strategic consumer behavior and demand uncertainty. Price protection is a kind of rebate that the retailer provides to consumers when the price drops during the selling season. The research investigates whether price protection can bring the retailer advantages. This paper compares price protection’s impact with price commitment. In addition, the paper studies the price protection’s impacts on supplier of the supply chain. Design/methodology/approach In this model, there are three alternative strategies for retailer: no price protection policy, full price protection policy and partial price protection policy. The selling season is divided into two periods: regular period and sale period. In the regular period, the products are sold at a regular price. In the sale one, the products are sold at a lower price. By adopting rational expectations equilibrium, this paper analyzes retailer’s optimal price and order quantity under each policy and compares optimal decisions and maximum profits of three policies. Findings This paper finds that the price protection has a positive influence on the retailer. Strategic consumers are induced to purchase at the regular period. It can simultaneously increase retailer’s profit and reduce inventory risk. Meantime, full price protection is chosen as the optimal policy. By comparing full price protection’s impacts with price commitment, full price protection is considered as the most profitable strategy, while price commitment can bring lower inventory risk. In addition, the profit of supplier would decrease because of price protection. Originality/value This research provides a new method to address the negative effects of strategic consumer behavior. It also brings some managerial insights to some retailers, especially online ones, on whether to adopt price protection.

Market Price-Based Transfer Price Systems. Empirical Evidence for Effectiveness and Preconditions

Abstract: Market price-based transfer prices for internally traded products are often used as a value measure for the decentralised management of internal production processes. The purpose of their use is the establishment of internal markets to increase efficiency and motivation in internal production, whereby market price-based transfer prices imply a particularly positive effect. This connection has to date not been proven adequately in empirical terms using specific production processes. The current paper addresses this gap and shows on the basis of a study of individual production proc- esses in 73 companies that market price-based transfer price systems as opposed to those unrelated to the market price have a much stronger efficiency and motivation effect. These effects are evalu- ated indirectly by subjective judgements of the involved managers due to a lack of measurable indicators. However, the use of market price-based transfer prices is connected to conditions re- garding the existence of a substitute with a transparent, observable market price and a similar stra- tegic importance of the business departments. The transaction basis and freedom tend to be de- signed to be consistent with each other.

Sources of price dispersion in U.S. residential solar installations

Abstract: Author(s): Nemet, G; O'Shaughnessy, E; Wiser, R; Darghouth, N; Barbose, GL; Gillingham, K; Rai, V | Abstract: Prices of solar PV have dropped dramatically, by half in just the past 6 years. But looking simply at prices paid today, there is considerable heterogeneity. For systems installed in 2014, the 10-90 percentile range for the observed $/W spans nearly a factor of 2. This apparent price dispersion raises policy-relevant questions, such as: why are consumers paying more than they need to? And would better-informed consumers increase the social benefits of solar PV? This paper analyzes price dispersion in U.S. residential PV installations between 2008 and 2014. Focusing on the most commonly used metric in previous studies of price dispersion, we use the quarterly coefficient of variation (CV) as our measure of price dispersion. We find higher levels of price dispersion in our data (0.22) than the average of 55 previous studies we reviewed (0.16). We also find that price dispersion has been persistent; it has remained above 0.15 since 2000 with no trend over that period. If anything, price dispersion has been increasing recently during the period for which we have complete data, 2008-14. Econometric analysis of the factors affecting price dispersion supports theories from the economic literature focusing on access to information and the costs and benefits of consumer search. Factors that increase the consumer payoffs of investing time in searching for information—system size and the value of solar—are associated with lower levels of price dispersion. Factors that reduce the costs of search—neighbors who have recently installed solar and having third-party quotes available—are also associated with less price dispersion. These results provide support for the importance of public efforts to enhance access to price information, e.g. by supporting price quote providers. The results also point to the particular need for information in nascent markets for PV in which access to the experience of neighbors is not available.

Measuring Diverging House Prices

Abstract: House price indexes summarize the development of all house prices in a single number, while actual price movements often differ among market segments. We develop a methodology for measuring house prices as a flexible function of housing services – a one-dimensional quality measure – and apply it to test for the common assumption of identical price movements in all parts of the housing market. Our approach is based on a generalization of the familiar (constant unit price) Muth model to a situation of in which the unit price of housing services may depend on the quality level. We apply the method to a rich set of transaction data referring to Amsterdam in the period 1985-2013. We estimate an indicator of housing services based only on the ranking of house prices in postcode areas during periods of three months and compare the results to conventional hedonic price equations that embody the assumption of a unit price for housing services that does not depend on quality. We develop a test for a constant price per unit of housing services and reject it on the basis of price differences occurring over time as well as over space.