Showing papers on "Limit price published in 2002"

The price dynamics of common trading strategies

Abstract: A deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices. This paper uses a market maker based method of price formation to study the price dynamics induced by several commonly used financial trading strategies, showing how they amplify noise, induce structure in prices, and cause phenomena such as excess and clustered volatility.

Tax, price and cigarette smoking: evidence from the tobacco documents and implications for tobacco company marketing strategies

Abstract: Objective: To examine tobacco company documents to determine what the companies knew about the impact of cigarette prices on smoking among youth, young adults, and adults, and to evaluate how this understanding affected their pricing and price related marketing strategies. Methods: Data for this study come from tobacco industry documents contained in the Youth and Marketing database created by the Roswell Park Cancer Institute and available through http:// roswell.tobaccodocuments.org, supplemented with documents obtained from http://www.tobaccodocuments.org. Results: Tobacco company documents provide clear evidence on the impact of cigarette prices on cigarette smoking, describing how tax related and other price increases lead to significant reductions in smoking, particularly among young persons. This information was very important in developing the industry9s pricing strategies, including the development of lower price branded generics and the pass through of cigarette excise tax increases, and in developing a variety of price related marketing efforts, including multi-pack discounts, couponing, and others. Conclusions: Pricing and price related promotions are among the most important marketing tools employed by tobacco companies. Future tobacco control efforts that aim to raise prices and limit price related marketing efforts are likely to be important in achieving reductions in tobacco use and the public health toll caused by tobacco.

Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes

Abstract: Information about price changes during a home’s marketing period is typically missing from data used to investigate the listing price, selling price, and selling time relationship. This paper incorporates price revision information into the study of this relationship. Using a maximum-likelihood probit model, we examine the determinants of list price changes and find evidence consistent with the theory of pricing behavior under demand uncertainty. Homes most likely to undergo list price changes are those with high initial markups and vacant homes, while homes with unusual features are the least likely to experience a price revision. We also explore the impact of missing price change information on estimating a representative model of house price and market time. Our results suggest that mispricing the home in the initial listing is costly to the seller in both time and money. Homes with large percentage changes in list price take longer to sell and ultimately sell at lower prices.

Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective

Abstract: Over the last 20 years, incentives in general and price caps in particular have breathed new life into public utility regulation. Price caps successfully combine incentives for cost reduction with incentives for more efficient pricing. These properties also facilitate opening public utility sectors to competition. Relatively tight price caps likely imply the right amount of competition, when the underlying natural market structure is unknown. While price caps make a regulated incumbent competitively more aggressive, this aggression is likely to improve on the unregulated outcome. Potentially anticompetitive behavior by the incumbent has led to regulation of essential inputs on the basis of benchmarked costs. Benchmarked costs should evolve into price caps for essential inputs and eventually lead to partial deregulation of end-user prices.

Can Price Dispersion in Online Markets be Explained byDifferences in e-Tailer Service Quality?

Abstract: It has been hypothesized that the online medium and the Internet lower search costs and that electronic markets are more competitive than conventional markets. This suggests that price dispersion - the distribution of prices of an item indicated by measures such as range and standard deviation - of an item with the same measured characteristics across sellers of the item at a given point in time for identical products sold by e-tailers online (on the Internet) should be smaller than it is offline, but some recent empirical evidence reveals the opposite. A study by Smith et al. (2000) speculates that this is due to heterogeneity among e-tailers in such factors as shopping convenience and consumer awareness. Based on an empirical analysis of 105 e-tailers comprising 6739 price observations for 581 items in eight product categories, we show that online price dispersion is persistent, even after controlling for e-tailer heterogeneity. Our general conclusion is that the proportion of the price dispersion explained by e-tailer characteristics is small. This evidence is contrary to the hypothesis that search costs in online markets are low, or that online markets are highly competitive. The results also show that after controlling for differences in e-tailer service quality, prices at pure play e-tailers are equal to or lower than those at bricks-and-clicks e-tailers for all categories except books and computer software.

Supplier- and buyer-driven channels in a two-stage supply chain

Abstract: In this paper we explore the impact of power structure on price, sensitivity of market price, and profits in a two-stage supply chain with a single-product, -supplier and -buyer. We develop and analyze the case where the supplier has dominant bargaining power and the case where the buyer has dominant bargaining power, and consider a pricing scheme for the buyer that involves both a multiplier and a constant mark up. We show that it is optimal for the buyer to set the mark-up to zero and use only a multiplier and that the market price and its sensitivity are higher when operational costs (namely distribution and inventory) exist. We also observe that the sensitivity of the market price increases nonlinearly as the wholesale price increases, and derive a lower bound for it. Through experimental analysis, we show that marginal impact of increasing shipment cost and carrying charge (interest rate) on prices and profits are decreasing in both cases.

Predicting Equity Liquidity

Abstract: In this paper we develop a measure of liquidity, price impact, which quantifies the change in a firm's stock price associated with its observed net trading volume. For a large set of institutional trades we compare out-of-sample, characteristic-based estimates of price impact to actual price impacts. Predictive predetermined firm characteristics, chosen to proxy for the severity of adverse selection in the equity market, the non-information-based costs of making a market in the stock, and the extent of shareholder heterogeneity, include relative size, historical relative trading volume, institutional holdings, and the inverse of the stock price. We find numerous aspects of trade execution which are significantly related to the price impact forecast error in economically plausible ways: For example, the predicted price impact overestimates the actual price impact for very large trades, for trades executed in a more patient manner, and for trades where the institution pays higher commissions.

The power of patience: a behavioural regularity in limit-order placement

Abstract: In this paper we demonstrate a striking regularity in the way people place limit orders in financial markets, using a data set consisting of roughly two million orders from the London Stock Exchange. We define the relative limit price as the difference between the limit price and the best price available. Merging the data from 50 stocks, we demonstrate that for both buy and sell orders, the unconditional cumulative distribution of relative limit prices decays roughly as a power law with exponent approximately –1.5. This behaviour spans more than two decades, ranging from a few ticks to about 2000 ticks. Time series of relative limit prices show interesting temporal structure, characterized by an autocorrelation function that asymptotically decays as C(τ)∼τ−0.4. Furthermore, relative limit price levels are positively correlated with and are led by price volatility. This feedback may potentially contribute to clustered volatility.

Retail Price Cycles and Response Asymmetry

Abstract: Weekly retail gasoline prices in Windsor, Ontario, from 1989 to 1994 appear to respond faster to wholesale price increases than to decreases, but exhibit a cyclic pattern inconsistent with a common explanation of response asymmetry. I reconcile these observations through a model of price cycles. Prices on the downward portion of the cycle appear insensitive to costs, compared with price increases, supporting the theory that price decreases result from battles over market share. This pattern resembles a faster response to cost increases than to decreases, and the conclusion that asymmetry indicates a role for competition policy may be inappropriate.

Measuring Prices and Price Competition Online: Amazon and Barnes and Noble

Abstract: Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quantity. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a price index for online books. The results show significant price sensitivity at both merchants but demand at Barnes and Noble is much more price-elastic than is demand at Amazon. The data also allow us to estimate the magnitude of bias in the CPI due to the rise of Internet sales.

Import price elasticities: reconsidering the evidence

Abstract: Recent economic geography and trade empirical studies based on monopolistic competition suggest high levels of trade price elasticities (between 3 and 1 1). However, price elasticity estimations in trade equations using unit values as price proxies usually lead to lower values of around unity. We show that those inconclusive results may be due to some misspecification in these equations as well as measurement errors in prices. When suit- able instrumental variables are used, within a panel of industrialized countries, we obtain high price elasticities, the majority ranging from I to 13. The highest estimates correspond to industries producing homogeneous goods. JEL classification: C2, C3 and F 1.

Asymmetry in Farm to Retail Price Transmission: Evidence from Brazil

Abstract: In this article, we describe the price transmission mechanism for three groups of agricultural products in Brazil to determine if they follow the pattern found in previous studies+ These groups combine different dimensions of the two arguments normally used to explain price asymmetry: market concentration and product storability+ Results from the study area in Brazil showed that neither product storability nor market concentration were required for intense price-increase transmission+ High and increasing Brazilian inflation rates found through 1994 led the population to expect continual price increases; the society may have been able to assimilate the most intense transmissions of price increments, independent of industry market power+ Consequently, our results demonstrate that the findings from previous price transmission studies cannot be generalized to other industries or for other periods+ New theoretical and empirical studies are needed to improve our understanding of asymmetrical price transmission+ @EconLit Citations: L660, 810# © 2002 Wiley Periodicals , Inc+

Development of a hybrid model for electrical power spot prices

Abstract: In recent years a great deal of interest has been paid to the market-based pricing of electrical power. Electrical power contracts often contain embedded options, the valuations of which require a stochastic model for electricity prices. Successful stochastic models exist for modeling price variations in traditional commodities. Electricity is critically different from these commodities as it is difficult to store and, on short time scales, its price is highly inelastic. This has important implications for stochastic spot price models of electricity. Several stochastic models of electricity spot prices already exist. In these random models price retums play a dominant role. In this paper we lead a guided tour through existing electricity price data to motivate a new stochastic electricity price model that is different in that it directly models price. We apply the new model to the problem of pricing options on electrical power and discuss these preliminary results.

Persistent Price Dispersion in Online Markets

Abstract: What is the New Economy, what makes it new, and what are the implications for antitrust, regulation and macroeconomic policy? Providing a non-technical and compelling analysis of the modern macro-economy, the contributors to this volume, eminent scholars all, provide their views on the New Economy from a variety of perspectives.

Price Competition under Stockpiling and Flexible Consumption

Abstract: Conventional wisdom suggests that the main effect of price promotion is on brand switching (i.e., secondary demand); however, some recent studies demonstrate that the primary demand expansion effect can be considerably larger than previously believed. A significant driver of this primary demand effect is consumer stockpiling in response to price promotions. Indeed, experimental studies have shown that additional inventory on hand can lead to an endogenous increase in consumption. The authors develop a model of price competition between firms in response to the stockpiling and subsequent consumption dynamics of consumers. In this setting, the flexible consumption effect causes more intense price competition, deeper promotions, and an increase in the frequency of promotions. The authors use two years of scanner panel data from eight product categories and 4313 stockkeeping units to test three implications of the theoretical model; they find strong support for each.

Rule-based system for determining price adjustments in a product catalog

Abstract: A method for computing a price quote for a product using a contract. The method includes identifying the set of price rules for a plurality of products associated with the contract. Each price rule in the set of price rules is either a hard price rule or a soft price rule. Each hard price rule includes a price rule expression and a price rule type and each soft price rule comprises a price rule type. A collection of price rules is generated including, for each soft rule in the set of price rules, hard price rules that are associated with the product and that have the same price rule type as the soft price rule. Hard price rules that are associated with the contract are also added to the collection of price rules. A pricing scheme that is to be used in order to determine the price quote for the product is selected and used to resolve the hard price rules in the collection of price rules in order to determine the price quote.

Price improvement crossing system

Abstract: A method provided for matching a buy order having a buy order price and a sell order having a sell order price that includes the step of determining if the buy order price is not less than the sell order price. Next, an NBBO price range is identified and it is determined whether the buy order price and the sell order price are within the NBBO range. A midpoint between the buy order price and the sell order price is then calculated. Finally, the buy order and the sell order is matched at the midpoint if the buy order price is not less than the sell order price and the buy order price and the sell order price are within the NBBO range.

The Adequacy of Full‐Cost‐Based Pricing Heuristics

Abstract: We investigate the performance of a full‐cost heuristic in a service setting. In our model, a service firm determines the amount of capacity, a price, and a price discount each period. Based upon the price, a stochastic number of customers will place service orders. If too many orders arrive in a period, the firm will offer a price discount to those customers willing to back order and accept service the next period. Even though the model is fairly simple, the optimal pricing, price discount, and capacity rules are complex and require extensive calculations. We examine how closely three distinct heuristics approximate the optimal performance. The best‐performing heuristic is a full‐cost pricing rule based upon a constrained version of the firm's optimization program. It consists of setting a price using full costs plus an adjustment based upon the nonlinear elasticity of demand. In 500 random simulations our full‐cost heuristic obtains 99.5 percent of the optimal performance. Preliminary analysis suggests ...

GIS-based analysis of marginal price variation with an application in the identification of candidate ethanol conversion plant locations

Abstract: Facility location decisions require large investments of capital and represent long-term commitments for businesses. For firms that are highly dependent on access to raw materials, plant location has a major impact on direct material costs and, hence, on total product costs, pricing, and profitability. In the procurement of bulky, low-value raw materials, the cost of transportation represents a large portion of the final delivered cost. Depending on the commodity, the price paid is often a function of the maximum delivered cost (marginal price) of attaining a target quantity at a particular location. Such costs differ considerably from one candidate location to another if there is significant spatial variation in the quantities of the raw materials and the costs to produce them. In addition, the quality of a transportation network can play a role in the relative marginal prices among candidate locations. An adequate assessment of marginal price is essential for identifying promising areas for plant location. In this paper, we describe a methodology for generating marginal price surfaces when the number of potential supply points and the number of candidate plant locations are both very large. We present a GIS-based application of the methodology for the identification of promising locations for switchgrass-to-ethanol conversion plants.

Winner-take-all price competition*

Abstract: We analyze an oligopoly model of homogeneous product price competition that allows for discontinuities in demand and/or costs. Conditions under which only zero profit equilibrium outcomes obtain in such settings are provided. We then illustrate through a series of examples that the conditions provided are “tight” in the sense that their relaxation leads to positive profit outcomes.

Dynamic Pricing and Lead‐Time Policies for Make‐to‐Order Systems*

Abstract: Make-to-order firms use different approaches for managing their lead-times and pricing in the face of changing market conditions. A particular firm's approach may be largely dictated by environmental constraints. For example, it makes little sense to carefully manage lead-time if its effect on demand is muted, as it can be in situations where leadtime is difficult for the market to gauge or requires investment to estimate. Similarly, it can be impractical to change capacity and price. However, environmental constraints are likely to become less of an issue in the future with the expanding e-business infrastructure, and this trend raises questions into how to manage effectively the marketing mix of price and lead-time in a more “friction-free” setting. We study a simple model of a make-to-order firm, and we examine policies for adjusting price and capacity in response to periodic and unpredictable shifts in how the market values price and lead-time. Our analysis suggests that maintaining a fixed capacity while using lead-time and/or price to absorb changes in the market will be most attractive when stability in throughput and profit are highly valued, but in volatile markets, this stability comes at a cost of low profits. From a pure profit maximization perspective, it is best to strive for a short and consistent lead-times by adjusting both capacity and price in response to market changes.

The Microstructure of Stock Markets

Abstract: We survey the literature analysing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We develop a united perspective on theoretical, empirical and experimental approaches. We discuss the evidence on transaction costs and the price impact of trades and its analyses in terms of adverse selection, inventory costs and market power. We review the extent to which the associated frictions can be mitigated by such features of market design as the degree of transparency, the use of call auctions, the discreteness of the pricing grid and the regulation of competition between liquidity suppliers or exchanges.

Customer Anger at Price Increases, Time Variation in the Frequency of Price Changes and Monetary Policy

Abstract: While much evidence suggests tha price rigidity is due to a concern with the reaction of customers, price increases do not seem to be typically associated with drastic reduction in purchases. To explain this apparent inconsistency, this paper develops a model where consumers care about the fairness of prices and react negatively only when they become convinced that prices are unfair. This leads to price rigidity, though the implications of the model are not identical to those of existing models of costly price adjustment. In particular, the frequency of price adjustment ought to depend on economy-wide variables observed by consumers. As I show, this has implications for the effects of monetary policy. It can, in particular, explain why inflation does not fall immediately after a monetary tightening.

Input Price Discrimination with Downstream Cournot Competitors

Abstract: This Paper addresses the question of third-degree price discrimination in input markets. I propose a solution that relies on a method that decomposes the upstream monopolist's profit into two parts, one that depends on average input prices, and one that depends on their distribution. I am able to obtain rather general results, and, in the linear demand case, I obtain a full characterization of the equilibria in the two regimes of price discrimination and price uniformity, generalizing the findings of Yoshida (2000). Under reasonable assumptions, input price discrimination negatively affects both consumer surplus and total welfare.