scispace - formally typeset
Search or ask a question

Showing papers on "Limit price published in 2003"


Journal ArticleDOI
TL;DR: In this paper, a series of studies demonstrates that consumers are inclined to believe that the selling price of a good or service is substantially higher than its fair price, and that potential corrective interventions, such as providing historical price information, explaining price differences, and cueing costs, were only modestly effective.
Abstract: A series of studies demonstrates that consumers are inclined to believe that the selling price of a good or service is substantially higher than its fair price. Consumers appear sensitive to several reference points—including past prices, competitor prices, and cost of goods sold—but underestimate the effects of inflation, overattribute price differences to profit, and fail to take into account the full range of vendor costs. Potential corrective interventions—such as providing historical price information, explaining price differences, and cueing costs—were only modestly effective. These results are considered in the context of a four‐dimensional transaction space that illustrates sources of perceived unfairness for both individual and multiple transactions.

907 citations


Journal ArticleDOI
TL;DR: The authors empirically examined the effect of price informativeness on the sensitivity of investment to stock price and found that price non-synchronicity and PIN measures are correlated with sensitivity to stock prices.
Abstract: Stock prices and real investments are highly correlated. Previous literature has offered two main explanations for this high correlation. The first explanation relies on price being informative about investment opportunities, the second one is based on financing constraints. In this paper we empirically examine the effect of price informativeness on the sensitivity of investment to stock price. Using price non-synchronicity and PIN as measures of price informativeness, we find that the degree of informativeness is positively correlated with the sensitivity of investment to stock price. Since, according to previous literature, these measures reflect private information, the result suggests that prices perform an active role, i.e., that managers learn from stock price when making investment decisions. This result is robust to the inclusion of various control variables (such as controls for managerial information) and to changes in specification.

725 citations


Journal ArticleDOI
TL;DR: In this paper, the authors used publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers, and matched this information to prices, directly estimating the elasticities of demand facing both merchants as well as creating a price index for online books.
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 BarnesandNoble.com is much more price-elastic than is demand at Amazon.com. The data also allow us to estimate the magnitude of bias in the CPI due to the rise of Internet sales.

486 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that an increase in the list price increases expected time-on-the-market (TOM) and that the effect of a higher list price is magnified for houses in a market segment having a low predicted variance of the list prices.
Abstract: When a house is placed on the market, the seller must choose the initial offer price. Setting the price too high or too low affects the marketability of the property. While there is near universal agreement that the seller faces a trade-off between selling at a higher price and selling in less time, there is less agreement about how to measure this trade-off. This paper offers a framework for analysis and shows that an increase in the list price increases expected time-on-the-market (TOM). Because house buyers must solve a type of signal extraction problem, the effect of a higher list price is magnified for houses in a market segment having a low predicted variance of the list price. This paper also shows that the list price of houses which are withdrawn before sale has a higher mean and variance, and that the possibility of withdrawal censors information about the time-on-the-market.

333 citations


Journal ArticleDOI
TL;DR: In this paper, the authors used data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores and found similar average prices online and in physical stores and substantial price dispersion online.
Abstract: Two conflicting predictions have emerged regarding the effect of low–cost information on price. The first states that all Internet retailers will charge the same low price for mass produced goods. The second states that Internet retailers will differentiate to avoid intense price competition. Using data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores, we find similar average prices online and in physical stores and substantial price dispersion online. Analysis of product differentiation yields no clear results. The substantial premium charged by Amazon provides indirect evidence of product differentiation.

303 citations


Journal ArticleDOI
TL;DR: This article developed a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations and found that long run cross price elasticities of demand are more than twice as great as short-run cross-price elasticities.
Abstract: We develop a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations. Our framework accounts for how inventories and expectations of future prices affect current period purchase decisions. We estimate our model using scanner data for the ketchup category. Our results indicate that price expectations and the nature of the price process have important effects on demand elasticities. Long-run cross price elasticities of demand are more than twice as great as short-run cross price elasticities. Temporary price cuts (or “deals”) primarily generate purchase acceleration and category expansion, rather than brand switching.

299 citations


Posted Content
TL;DR: The authors developed a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations, and found that long-run cross price elasticities of demand are more than twice as great as short run cross-price elasticities.
Abstract: We develop a model of household demand for frequently purchased consumer goods that are branded, storable and subject to stochastic price fluctuations. Our framework accounts for how inventories and expectations of future prices affect current period purchase decisions. We estimate our model using scanner data for the ketchup category. Our results indicate that price expectations and the nature of the price process have important effects on demand elasticities. Long-run cross price elasticities of demand are more than twice as great as short-run cross price elasticities. Temporary price cuts (or ‘‘deals’’) primarily generate purchase acceleration and category expansion, rather than brand switching.

274 citations


Journal ArticleDOI
TL;DR: In this article, the authors present a series of three field-studies in which price endings were experimentally manipulated and the data yield two conclusions: first, use of a $9 price ending increased demand in all three experiments and second, the increase in demand was stronger for new items than for items that the retailer had sold in previous years.
Abstract: Although the use of $9 price endings is widespread amongst US retailers there is little evidence of their effectiveness. In this paper, we present a series of three field-studies in which price endings were experimentally manipulated. The data yield two conclusions. First, use of a $9 price ending increased demand in all three experiments. Second, the increase in demand was stronger for new items than for items that the retailer had sold in previous years. There is also some evidence that $9 price endings are less effective when retailers use “Sale” cues. Together, these results suggest that $9-endings may be more effective when customers have limited information, which may in turn help to explain why retailers do not use $9 price endings on every item.

228 citations


Journal ArticleDOI
TL;DR: In this article, the authors examine the institutional bids submitted under the bookbuilding procedure for a sample of international equity issues and find that information in bids which include a limit price, especially those of large and frequent bidders, affects the issue price.
Abstract: We examine the institutional bids submitted under the bookbuilding procedure for a sample of international equity issues. We find that information in bids which include a limit price, especially those of large and frequent bidders, affects the issue price. Oversubscription has a smaller but significant effect for IPOs. Public information affects the issue price to the extent that it is reflected in the bids. Oversubscription and demand elasticity are positively correlated with the first-day aftermarket return, and demand elasticity is negatively correlated with aftermarket volatility. Our results support the view that bookbuilding is designed to extract information from investors.

218 citations


Journal ArticleDOI
TL;DR: In this paper, Caginalp et al. show that common group experience does not predict the bubble and crash phenomena found in these experimental markets; such models yield only equilibrium predictions and do not articulate a dynamic process that converges to fundamental value with experience.
Abstract: Trading at prices above the fundamental value of an asset, i.e. a bubble, has been verified and replicated in laboratory asset markets for the past seven years. To date, only common group experience provides minimal conditions for common investor sentiment and trading at fundamental value. Rational expectations models do not predict the bubble and crash phenomena found in these experimental markets; such models yield only equilibrium predictions and do not articulate a dynamic process that converges to fundamental value with experience. The dynamic models proposed by Caginalp et al. do an excellent job of predicting price patterns after calibration with a previous experimental bubble, given the initial conditions for a new bubble and its controlled fundamental value. Several extensions of this basic laboratory asset market have recently been undertaken which allow for margin buying, short selling, futures contracting, limit price change rules and a host of other changes that could effect price formation i...

193 citations


Journal ArticleDOI
TL;DR: In this article, the authors show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant's good is incompatible with the incumbent's good and there are network externalities in demand.
Abstract: of a network good. We show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant’s good is incompatible with the incumbent’s good and there are network externalities in demand. Consequently, the threat of entry can lead the incumbent to set low prices. We identify some factors that should be considered in thinking about the welfare eiects of entry deterrence in this and similar models. i. introduction Both sides in US v. Microsoft seem to agree that Microsoft’s pricing of Windows does not correspond to short-run pro¢t maximization by a monopolist. Schmalensee’s direct testimony argues that Microsoft’s low prices are due at least in part to its concern that higher prices would encourage other ¢rms to develop competing operating systems. While this idea may seem intuitive, it has been seen as controversial by some commentators (e.g. Hall and Hall [1999]) because neither side has proposed a formal model where such ‘limit pricing’ would make sense. In response, this paper develops a highly simpli¢ed model of complete-information limit pricing, based on the idea that the installed base of a network good can ¢ll a preemptive role similar to that of investment in physical capacity. To model the role of the incumbent’s installed base, we assume that there are overlapping generations of consumers, each of whom lives for two periods and purchases only when young. We also assume there are only two types of consumers, and we further assume that the distribution of values is such that the incumbent’s steady-state pro¢t is highest when it

Journal ArticleDOI
TL;DR: This paper extends Kyle's (1985) and Back's (1992) uniqueness result by showing that the equilibrium is also unique on this larger class of price processes that allow the price to depend in a certain way on the path of the market order.
Abstract: The Kyle (1985) and Back (1992) model of continuous-time asset pricing with asymmetric information is studied. A larger class of price processes is considered, namely price processes that allow the price to depend in a certain way on the path of the market order. A no expected (or inconspicuous insider) trade theorem\/ is satisfied regardless of how much the informed agent is sensitive to the risk. When the informed agent is risk-neutral, the price pressure is constant over time and the price depends only on the cumulative market order. As a corollary, this paper extends Kyle's (1985) and Back's (1992) uniqueness result by showing that the equilibrium is also unique on this larger class of price processes. When the informed agent is risk-averse, in contrast, the price pressure decreases over time and the price depends on the entire path. The price pressure with risk aversion converges uniformly to the risk-neutral price pressure as the informed agent becomes less and less risk-averse; similarly, the equilibrium with risk aversion converges to the risk-neutral equilibrium.

Journal ArticleDOI
TL;DR: In this paper, the authors compare two price-elicitation strategies: price generation and price selection, and show that consumers often prefer to select rather than to generate a price.

Journal ArticleDOI
TL;DR: In this paper, a quadratic model is specified for the impact of external reference price (ERP) on consumer price expectations, and support for an inverted U-shape relationship is found between consumers' updated price expectations and the difference between ERP and initial price expectations.

Journal ArticleDOI
TL;DR: In this paper, the authors compare the performance of a discriminatory price auction with a uniform price auction (UPA), strictly controlling for unilateral market power, and find that in a no market power design, prices in a DPA converge to the high prices of a UPA with structural market power.
Abstract: A “pay-as-offered” or discriminatory price auction (DPA) has been proposed to solve the problem of inflated and volatile wholesale electricity prices. Using the experimental method we compare the DPA with a uniform price auction (UPA), strictly controlling for unilateral market power. We find that a DPA indeed substantially reduces price volatility. However, in a no market power design, prices in a DPA converge to the high prices of a uniform price auction with structural market power. That is, the DPA in a no market power environment is as anti-competitive as a UPA with structurally introduced market power.

Journal ArticleDOI
TL;DR: In this paper, the authors empirically examined 1,364 brand-store combinations from 17 chains, 212 stores and six categories of consumer package goods in five U.S. markets and found that the most prevalent pricing strategy is not Hi-Lo pricing strategy as is widely believed.

Journal ArticleDOI
TL;DR: In this article, the authors examine the relationship between price level and under pricing, turnover, and performance and find that post-IPO turnover displays an inverted U-shaped relation to IPO price, and that firms choosing a higher stock price level experience lower (higher) mortality rates.
Abstract: Firms choose a share price level both when they split their seasoned shares and when they go public. The stock splits literature, which has examined whether this choice has any economic significance, remains divided on the question of whether firms split their shares to achieve a desired share price or to signal private information. In the market microstructure literature, the share price has been considered significant primarily as a proxy for market liquidity. Controlling for liquidity as well as size effects, we ask whether a firm's choice of IPO price is informative in the sense that it relates systematically to the firm's other choices and characteristics. We make several contributions to the literature. We first examine whether there are systematic differences in ownership structure (individual vs. institutional) between low and high-priced IPOs. We find that both institutional ownership and underwriter reputation increases monotonically with the chosen IPO price level. We next examine the relationship between price level and IPO underpricing, turnover and performance. We find that the relationship between IPO price level and under pricing is U-shaped. The U-shape is robust to controls for the Hanley (1993) partial adjustment phenomenon. In contrast, post-IPO turnover displays an inverted U-shaped relation to IPO price. Moreover, firms choosing a higher (lower) stock price level experience lower (higher) mortality rates. Our results remain unchanged when we confine our analysis to the sub-period following the 1990 Penny Stock Reform Act, when we control for the listing exchange, and when we specifically exclude penny stocks from our sample.

Patent
30 Oct 2003
TL;DR: In this article, a price improvement processor is proposed to effectuate more rapid matching of bids and offers of financial instruments by conducting a rapid automated auction in which certain market participants may provide price improvement in increments that are finer than the prevailing standard minimum price variation and are provided a certain allocation as an incentive for such price improvements.
Abstract: A price improvement processor to effectuate more rapid matching of bids and offers of financial instruments by conducting a rapid automated auction in which certain market participants may provide price improvement in increments that are finer than the prevailing standard minimum price variation and are provided a certain allocation as an incentive for such price improvements.

Patent
22 Dec 2003
TL;DR: In this article, a marketeer exploits the nature of readily identifiable, fungible, durable goods by determining a price for a good, such as a used good, by using a price of a comparable good such as new good, as an index price and deriving a discounted sale price for the good from the price of the comparable good having essentially the same value due to its fungible and durable nature.
Abstract: A method for pricing independent sellers' goods. A marketeer exploits the nature of readily identifiable, fungible, durable goods by determining a price for a good, such as a used good, by using a price of a comparable good, such as a new good, as an index price and deriving a discounted sale price for the good from the price of the comparable good having essentially the same value due to its fungible, durable nature. A best price for the good is ensured by using as the index price a lowest price among a group of vendors for the comparable good. A shopping agent program may be used to query one or more vendors to determine a best price for the comparable good, and a pricing agent program may be used to derive a discounted sale price for the good from the best price for the comparable good.

Journal ArticleDOI
TL;DR: In this article, it was demonstrated that the presentation format of numeric price information and the arithmetic operation required in the price impose a hierarchy on consumers' evaluation effort for multi-dimensional prices.
Abstract: Prices in the marketplace often consist of multiple dimensions, such as a base price, percentage discounts, trade-in values, and monthly fees. The presence of multiple dimensions in a price forces consumers to compute the net price in order to determine the value of the presented offer. In two experiments, it is demonstrated that the presentation format of numeric price information and the arithmetic operation required in the price impose a hierarchy on consumers’ evaluation effort for multi-dimensional prices. The resulting variations in consumer effort are shown to systematically influence decision accuracy. Implications challenging the traditional uni-dimensional view of price are discussed.

Journal ArticleDOI
TL;DR: The relative importance of actual and potential competition in the pharmaceuticals market is discussed in this article, where empirical evidence from the pharmaceutical market is used to evaluate the potential competition of drugs.
Abstract: The Relative Importance of Actual and Potential Competition : Empirical Evidence From the Pharmaceuticals Market

Journal ArticleDOI
TL;DR: A multi-period pricing model is proposed for the case where the seller can divide the sales period into several short periods and determine the optimal product price based on the demand rate, buyers' preferences, and length of theSales period.

Journal ArticleDOI
TL;DR: An information display device wherein there is a base plate with information bearing face plates detachably mounted thereon by one or more spline elements that press-fit with formations on each of the opposing faces of the base and face plate.
Abstract: We investigate expectation formation in a controlled experimental environment. Subjects are asked to predict the price in a standard asset pricing model. They do not have knowledge of the underlying market equilibrium equations, but they know all past realized prices and their own predictions. Aggregate demand of the risky asset depends upon the forecasts of the participants. The realized price is then obtained from market equilibrium with feedback from individual expectations. Each market is populated by six subjects and a small fraction of fundamentalist traders. Realized prices differ significantly from fundamental values. In some groups the asset price converges slowly to the fundamental price, in other groups there are regular oscillations around the fundamental price. Participants coordinate on a common prediction strategy. The individual prediction strategies can be estimated and correspond, for a large majority of participants, to simple linear autoregressive forecasting rules.

Journal ArticleDOI
TL;DR: In this paper, price dynamics are studied in a dataset of more than 11,000 transactions from large-scale financial markets experiments with multiple risky securities, and the authors find strong correlation between excess demands and a weighted average of the quotes in the book.

Journal ArticleDOI
TL;DR: In this paper, the authors studied the dispersion of absolute price levels for US cities since 1918 and found strong evidence that city price levels converge over time and that price level convergence in US cities will produce bilateral real exchange rate nonstationarity.

Journal ArticleDOI
TL;DR: In this paper, a market mechanism that extends the double auctions to a fully symmetric multi-commodity setup, or equivalently, that extends Shapley's "windows" model to allow in addition for limit orders as opposed to just market orders, is presented.

Journal Article
TL;DR: In this article, the authors studied the effect of speculators on production decisions and price levels in New York's deregulated electricity market and showed that, after the market opened to purely speculative traders, the forward price of electricity in western New York was significantly higher than the expected spot price.
Abstract: While the effect speculators have on forward premiums (the difference between forward and expected spot prices) has been widely studied, there has been very little focus on the effect speculators have on competition in the product market. I study the effect speculators have had on production decisions and price levels in New York's deregulated electricity market. For the past two years of its operation, the market, which opened in November 1999, restricted trade to producers and retailers of electricity. During this period, the forward price of electricity in western New York was significantly higher than the expected spot price. I show that, after the market opened to purely speculative traders the forward premium significantly decreased. In addition, the forward price of transmission (the price difference between two geographically distinct points) ceased to differ significantly from the expected spot price of transmission. I present a theoretical model to help understand these price relationships and other possible effects of speculators on market prices and firms' production decisions. Absent speculators, the model predicts that firms with market power will price discriminate between the forward and spot markets for electricity, resulting in the forward price being higher than the expected spot price. This discrimination in the market for electricity will result in the forward price of transmission under-predicting the spot price of transmission. When speculators that prevent firms from price discriminating are added to the model forward price-cost margins decrease. Using detailed data on the marginal costs of generation units in New York, I test these predictions of the model, and find that, after controlling for other market changes, the forward price-cost margins of firms in western New York did, in fact, significantly decrease after speculators were allowed to enter the market.

Journal ArticleDOI
TL;DR: In this article, the authors analyzed the price competition among Belgian gas stations and observed that stations located along a highway always charge the maximum price, and that the number of local competitors does not have a large impact on retail gasoline prices.
Abstract: The Belgian retail gasoline network is one of the densest in the world and is characterised by a maximum price agreement between the government and the oil industry. Using price data covering almost 500 points of sale located all over Belgium, the price competition among Belgian gas stations is analysed. We observe that stations located along a highway always charge the maximum price. On local markets that are sufficiently competitive, prices are below the maximum price. The analysis further suggests that the number of local competitors does not have a large impact on retail gasoline prices. However, competition is fiercer in the presence of independent gasoline retailers.

Journal ArticleDOI
TL;DR: In this paper, the authors present strategic recommendations for improving the way in which prices are changed within organizations, by broadening the definition of the costs of changing price and then presenting strategic recommendations.

Journal ArticleDOI
TL;DR: In a tax-free world, Hirshleifer (1956) advocated that the internal transfer price should be a weighted average of the pre-tax marginal cost and the most favorable arm's length price.
Abstract: This paper examines transfer pricing in multinational firms when individual divisions face different income tax rates. Assuming that a firm decouples its internal transfer price from the arm's length price used for tax purposes, we analyze the effectiveness of alternative pricing rules under both cost- and market-based transfer pricing. In a tax-free world, Hirshleifer (1956) advocated that the internal transfer price be set equal to the marginal cost of the supplying division. Extending this solution, we argue that the optimal internal transfer price should be a weighted average of the pre-tax marginal cost and the most favorable arm's length price. When the supplying division sells the intermediate product in question also to outside parties, the external price becomes a natural candidate for the arm's length price. We argue that for internal performance evaluation purposes firms should generally not value internal transactions at the prevailing market price if the supplying division has monopoly power in the external market. By imposing intracompany discounts, firms can alleviate attendant double marginalization problems and, at the same time, realize tax savings which take advantage of differences in income tax rates. Our analysis characterizes optimal intracompany discounts as a function of the market parameters and the divisional tax rates.