Factor price

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

Intertemporal Price Discrimination in Storable Goods Markets

Abstract: We study intertemporal price discrimination when consumers can store for future consumption needs. To make the problem tractable we offer a simple model of demand dynamics, which we estimate using market level data. Optimal pricing involves temporary price reductions that enable sellers to discriminate between price sensitive consumers, who anticipate future needs, and less price-sensitive consumers. We empirically quantify the impact of intertemporal price discrimination on profits and welfare. We find that sales: (1) capture 25-30% of the profit gap between non-discriminatory and third degree price discrimination profits, and (2) increase total welfare.

The Sources of On-Line Price Dispersion Across Product Types: An Integrative View of On-Line Search Costs and Price Premiums

Abstract: This article analyzes the price dispersion for products observed on the Internet and reaffirms the existence of substantial price dispersion across e-tailers. Comparison of advertised vs. unadvertised products reveals that predictions of search theory on advertising effect are generally not confirmed in the Internet market. Comparison of multi-channel vs. pure-play e-tailers reveals that multi-channel retailers with established brands in physical stores command price premiums in most on-line markets but not in very competitive markets like books, CDs, and flight tickets. A model is developed that uses cross-site and in-site search as search cost variables, and range of product options, product description, and product demonstration as Web site service feature variables. It is used to test when search cost variables are more salient than service feature variables, and vice versa. The results show that whether a variable accounts for variance in prices differs from product to product. Some service features enable e-retailers to charge higher prices without losing competitiveness; others do not offer price advantage because they represent lower cost structures that allow e-tailers to charge lower prices to become more competitive.

Imperfect information: The persistence of price dispersion on the web

Abstract: In this article, the authors empirically test the notion that as the mean price of durables increases, the degree of dispersion also increases. This effect holds even when they specifically consider variables such as the number of competitors and store quality. The authors suggest that an individual-level perceptual mechanism, the psychophysics of price, at the aggregate level helps explain continued price dispersion on the Web. These results are contrary to predictions from standard economic theory, which suggest that readily available price information will result in increased price competition and lower price dispersion. Two studies consistently demonstrate that as the mean price of an item increases, price dispersion also increases. These results provide evidence that, contrary to general economic expectations, the Internet has not commoditized products. Retailers and managers need to pay attention to Internet information but not be fearful of its impact on their pricing strategies.

The Welfare Implications of Externalities and Price Elasticities for Telecommunications Pricing

Abstract: THE efficiency implications of telecommunications service pricing are analogous to a puzzle whose parts are beginning to be assembled. Recently, Mitchell (1978) has examined the efficiency implications of alternative local service pricing approaches. He contrasts the welfare effects of a flat monthly rate with measured service pricing under an optimal two part tariff with an access line charge and a per call charge. Daly and Mayor (1980) have examined the efficiency implications of free directory assistance, contrasting it to marginal cost pricing and found large welfare losses. The efficiency implications of long-distance telecommunications service, which in 1975 accounted for almost one-half of the Bell System revenues,' remains to be placed in the puzzle. The primary purpose of this paper is to examine the efficiency implications of the pricing of local service vis-h-vis conventional long-distance service referred to as Message Telecommunications Service (MTS), which constitutes the bulk of long-distance service. Excluded from this analysis are WATS and private line service. As demonstrated by Rohlfs (1979), substantial cross subsidization occurs between local service, which is priced approximately 50% below marginal cost, and long-distance, which is priced two to three times above marginal cost. Nevertheless, cross subsidization need not imply inefficiency in a second best pricing framework for several reasons (Baumol and Bradford, 1970). First, subsidization of local service can be justified due to access externalities, arising because the value to potential callers is not internalized in the subscriber's price. Second, even in the absence of access externalities, if the price elasticities of both services tend to be very inelastic, cross subsidization may have negligible efficiency effects. The optimal second best pricing approach depends critically on the deviation of price from marginal costs, the extent of the access externality, and the relative price elasticities for local and long-distance service. In this exercise, the welfare effects are particularly sensitive to the price elasticity of MTS service, thereby justifying the empirical focus on the price elasticity of MTS. The MTS demand relationship estimated in this paper contains advances in several respects. First, unlike previous pure time series or cross sectional studies,2 the data set consists of pooled quarterly data (1966 to 1978) for five southwestern states. The analysis of intrastate long distance demand3 offers a much more robust data source than national interstate demand owing to the limited price variation in the latter. The pooled model features polynomial distributed lags and an error structure which corrects for both autocorrelation and heteroskedasticity. Also, the model includes a unique and superior measure of television advertising effects, an index of gross rating points, reflecting the actual frequency with which television advertising is viewed by the public. The use of gross rating points avoids the distortion implicit in the substantial volume discounts reflected in expenditure data.4 The subsequent section outlines the simple theoretical model, which is the basis for econometric estimation and the pooling techniques. Section III reports the empirical results. In section IV, we examine the price elasticity implications for optimal pricing of MTS service. Section V recapitulates the major conclusions and suggests directions for future research. Received for publication September 29, 1980. Revision accepted for publication April 20, 1981. * University of Houston. The author wishes to acknowledge the collaboration of Bruce Egan in the econometric modelling section of this paper. In addition, numerous helpful comments were provided by George Daly, Thomas Mayor, Jeffrey Rohlfs, William Taylor, and an anonymous referee. I See Rohlfs (1978), table III-1. 2 For a review, see Taylor (1980) and Lowry (1976). 3 Taylor notes that from the view of demand, the distinction between interstate and intrastate MTS is purely artificial. See Taylor (1980), p. 97, and table 5.1 4 Comanor and Wilson (1967) note that volume discounts may give rise to increasing marginal returns to advertising expenditures.