Factor price

About: Factor price is a research topic. Over the lifetime, 2764 publications have been published within this topic receiving 86176 citations.

Do Switching Costs Make Markets More or Less Competitive?: The Case of 800-Number Portability

Abstract: Do switching costs reduce or intensify price competition in markets where firms charge the same price to old and new consumers? The answer is theoretically ambiguous because a firm prefers to charge a higher price to previous purchasers who are "locked-in" and a lower price to unattached consumers who offer higher future profitability. 800-number portability provides empirical evidence to determine whether switching costs reduce or intensify price competition under a single price regime. Before portability, a customer had to change toll-free numbers in order to change service providers. In May 1993, 800-numbers became portable, under a regulatory regime that precluded price discrimination between old and new consumers. I test how AT&T and MCI adjusted their toll-free services prices in response to portability. I find that the firms reduced prices with portability, implying that the elimination of switching costs due to portability made the market more competitive. Thus, despite rapid growth in toll-free services, the firms' incentives to charge a higher price to "locked-in" consumers exceeded their incentive to capture new consumers. Prices on larger contracts dropped more post-portability than those on smaller contracts, consistent with greater "lock-in" for larger users. I also find evidence that price changes after portability's announcement but before implementation are consistent with rational expectations assumptions of theoretical switching costs models.

A Method for Evaluating Supply Response to Price Underwriting

Abstract: In this paper a method for evaluating the supply response of individual producers to a price underwriting scheme is presented. The method includes precise formulae to take account of the impact of price underwriting on the producer's uncertain conditions. The Australian Wheat Board's guaranteed minimum price scheme is taken as a specific example of price underwriting in practice. Results show the scheme to lead to only relatively small supply responses. The impact on producer behaviour of an increase in price uncertainty in the presence of an underwriting scheme is also demonstrated in the paper.

Necessary and Sufficient Conditions for Factor Price Equalization

Abstract: Although models with factor price equalization are used frequently in both theoretical and applied research in international economics, only sufficient conditions for factor price equalization have been presented in the literature. In this paper, the authors present necessary and sufficient conditions for factor price equalization under quite general assumptions about the technologies of different countries. The necessary and sufficient conditions they derive are consistent with joint production, decreasing returns to scale, and substantive differences in the technologies and endowments of different countries. The authors' results enable them to reconcile the classical approach and the integrated equilibrium approach to factor price equalization.

Inflation Bias and Productivity Shocks in Transition Economies: The Case of the Czech Republic

Abstract: This paper examines the reliability of macroeconomic price indices in transition economies, and specifically in the Czech Republic. While methodologically sophisticated price indices in mature market economies may be biased, most policy makers believe that this is only a minor problem and that their price indices accurately describe price and thus real macroeconomic dynamics within their economies. However, some observers have argued that similar methods applied in transition economies have created time series that badly distort real and nominal measures of economic activity. If this were the case, then transition price data have misled both the public and policy makers about the true economic performance during transition and have seriously undermined academic research efforts. We examine the major sources of bias in price indices in a transition economy, specify and estimate a model of price formation and identify systematic and random productivity shocks to both the producer price and consumer price indices (PPI and CPI) in the Czech Republic. Between 1993 and 1998 we find that price index biases have been modest. Therefore, we conclude that Czech macroeconomic policy was not, in general, led astray by biased or distorted statistics.

Market Segmentation and Collusive Behavior

Abstract: The recent literature on oligopolistic third-degree price discrimination has been primarily concerned with rival firms' incentives to acquire customer-specific information and the consequences of such information on firm profitability and welfare. This literature has taken mostly a static view of the interaction between competing firms. In contrast, in this paper, we investigate the impact of customer-specific information on the likelihood of tacit collusion in a dynamic game of repeated interaction. This issue is very important because competitive price discrimination usually leads to a cutthroat price competition (prisoners' dilemma) among firms. Firms, therefore, may seek ways to soften competition and sustain higher prices. Our main result is that collusion becomes more difficult as the firms' ability to segment consumers improves.