Factor price

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

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...

Consumer Search, Price Dispersion, and International Relative Price Volatility*

Abstract: This paper develops a model of consumer search consistent with the evidence of substantial price dispersion within countries. This model is used to study international relative price fluctuations. Consumer search frictions permit firms to price discriminate across markets based on the local wage of consumers. With price dispersion, the market price of a good does not measure its resource cost. This breaks the tight link between relative quantities and relative prices implied by most models. The authors show that volatile and persistent fluctuations in relative wages lead to volatile and persistent fluctuations in relative prices at the disaggregate level. These deviations from the law of one price substantially increase international relative price volatility. With productivity and taste shocks, the model generates international business cycles that closely match the data.

A Search Theory of Rigid Prices

Abstract: In this paper, I build a model marketplace populated by a finite number of sellers - each producing its own variety of the good - and a continuum of buyers-each searching for a variety he likes. Using the model, I study the response of a seller's price to privately observed fluctuations in its idiosyncratic production cost. I find that the qualitative properties of this response critically depend on the persistence of the production cost. In particular, if the cost is i.i.d., the seller's price does not respond at all. If the cost is somewhat persistent, the seller's price responds slowly and incompletely. If the cost is very persistent, the seller's price adjusts instantaneously and efficiently to all fluctuations in productivity. I argue that these findings can explain why the monthly frequency of a price change is so much lower for processed than for raw goods.

Aspects of Unilateral Trade Policy and Factor Adjustment Costs

Abstract: OVER the past decade, the post-war United States position in favor of free trade has been strongly attacked by those who have invested in and are employed in industries facing significant competition from imports. Since factors of production are temporarily tied to a particular industry, all factors in contracting industries experience economic losses of a short-run nature. This paper considers to what extent these short-term losses alter the welfare evaluation of free trade policies. A second intent, based on the analytical framework developed to resolve the first point, is to determine when a tariff reduction may be preferable to tariff removal and how such tariff reductions may be effectively carried out over time. In the literature of trade policy, it has been shown that in a two-good general equilibrium model under the assumption that factors of production are immobile, the gains from free trade will be reduced but remain positive if no distortions exist (Haberler, 1950; Johnson, 1965). More recently, studies have focused on the short-run distributional effects of changing international prices. Capital has been postulated to be immobile between the two industries and relative factor prices perfectly flexible (Mayer, 1974; Mussa, 1974). In this paper the analysis is based upon the situation where factor-price rigidities exist in addition to factor immobility. Under these circumstances changes in international prices result in unemployment. The economy is moved inside its long-run production possibilities frontier, and any welfare assessment of a free trade policy must allow for the second-best effect of this factor-market distortion. Because the short-run effect may be negative, the question arises whether the long-run welfare gain for a small country offsets this loss.' This study treats imports and domestic competing goods as imperfect substitutes, and allows for the effects of short-run output price rigidities. Limitations of the analysis are that only unilateral tariff reductions are dealt with empirically, and terms-of-trade effects are ignored.2 The model is used to evaluate the welfare cost of current tariff barriers for five disaggregated industries: industrial chemicals, iron and steel, machine tools, electrical machinery, and motor vehicles. One issue that falls out of this approach is whether an intermediate position between free trade and the current level of restrictions is preferable, given the existence of factor-market distortions. It is shown empirically that complete tariff removal generally will not be optimal in terms of economic efficiency and that phased reductions of tariffs over time will be preferable to a single tariff cut. Section I is concerned with the determination of benefits and social costs from tariff removal. Since United States trade policy often is determined in the context of unilateral policy changes affecting a single disaggregated industry, the empirical calculations presented in