Showing papers on "Limit price published in 2019"

Best Prices: Price Discrimination and Consumer Substitution

Abstract: This paper proposes a method for aggregating prices when retailers use periodic sales to price-discriminate amongst heterogeneous customers. In the motivating model, loyal customers buy one brand and do not strategically time purchases, while Bargain Hunters always pay the lowest price available, the "best price." In the model, the best price is part of an exact price index. Accounting for the best price also substantially improves the empirical match between conventional price aggregation strategies and actual prices paid by consumers. The methodology improves inflation measurement while imposing little burden on the data-collection agency.

Dynamic pricing model for less-than-truckload carriers in the Physical Internet

Abstract: This paper investigates a less-than-truckload dynamic pricing decision-making problem in the context of the Physical Internet (PI). The PI can be seen as the interconnection of logistics networks via open PI-hubs. In terms of transport, PI-hubs can be considered as spot freight markets where LTL requests with different volumes/destinations continuously arrive over time and only remain for short periods. Carriers can bid for these requests using short-term contracts. In a dynamic, stochastic environment like this, a major concern for carriers is how to propose prices for requests to maximise their revenue. The latter is determined by the proposed price and the probability of winning the request at that price. This paper proposes a dynamic pricing model based on an auction mechanism to optimise the carrier’s bid price. An experimental study is conducted in which two pricing strategies are proposed and assessed: a unique bidding price (one unique price for all requests at an auction), and a variable bidding price (price for each request at an auction). Three influencing factors are also investigated: quantity of requests, carrier capacity, and cost. The experimental results provide insightful conclusions and useful guidelines for carriers regarding pricing decisions in PI-hubs.

Prices and Promotions in U.S. Retail Markets: Evidence from Big Data

Abstract: We document the degree of price dispersion and the similarities as well as differences in pricing and promotion strategies across stores in the US retail (grocery) industry Our analysis is based on “big data” that allow us to draw general conclusions based on the prices for close to 50,000 products (UPC’s) in 17,184 stores that belong to 81 different retail chains Both at the national and local market level we find a substantial degree of price dispersion for UPC’s and brands at a given moment in time We document that both persistent base price differences across stores and price promotions contribute to the overall price variance, and we provide a decomposition of the price variance into base price and promotion components There is substantial heterogeneity in the degree of price dispersion across products Some of this heterogeneity can be explained by the degree of product penetration (adoption by households) and the number of retail chains that carry a product at the market level Prices and promotions are more homogenous at the retail chain than at the market level In particular, within local markets, prices and promotions are substantially more similar within stores that belong to the same chain than across stores that belong to different chains Furthermore, the incidence of price promotions is strongly coordinated within retail chains, both at the local market level and nationally We present evidence, based on store-level demand estimates for 2,000 brands, that price elasticities and promotion effects at the local market level are substantially more similar within stores that belong to the same chain than across stores belonging to different retailers Moreover, we find that retailers can not easily distinguish, in a statistical sense, among the price elasticities and promotion effects across stores using retailer-level data Hence, the limited level of price discrimination across stores by retail chains likely reflects demand similarity and the inability to distinguish demand across the stores in a local market Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at wwwnberorg

Product differentiation and cost pass-through

Abstract: The present paper extends the existing literature on vertical price transmission and cost pass‐through by investigating the impact of product differentiation. We apply distance‐measures of product differentiation to a specific product market (yoghurt) within one country (Germany). Results from a panel‐error‐correction model for 30 products sold in 432 stores over a period of 312 weeks suggest that product differentiation explains a significant share of differences in cost pass‐through rates: more differentiated products command higher prices and are characterised by lower equilibrium cost pass‐through rates as well as more sluggish price adjustment.

How Efficient is Dynamic Competition? The Case of Price as Investment

Abstract: We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria of a learning-by-doing model to the first-best planner solution. We show that dynamic competition leads to low deadweight loss. This cannot be attributed to similarity between the equilibria and the planner solution. Instead, we show how learning-by-doing causes the various contributions to deadweight loss to either be small or partly offset each other.

Pricing Average Price Advertising Options When Underlying Spot Market Prices Are Discontinuous

Abstract: Advertising options have been recently studied as a special type of guaranteed contracts in online advertising, which are an alternative sales mechanism to real-time auctions. An advertising option is a contract which gives its buyer a right but not obligation to enter into transactions to purchase page views or link clicks at one or multiple pre-specified prices in a specific future period. Different from typical guaranteed contracts, the option buyer pays a lower upfront fee but can have greater flexibility and more control of advertising. Many studies on advertising options so far have been restricted to the situations where the option payoff is determined by the underlying spot market price at a specific time point and the price evolution over time is assumed to be continuous. The former leads to a biased calculation of option payoff and the latter is invalid empirically for many online advertising slots. This paper addresses these two limitations by proposing a new advertising option pricing framework. First, the option payoff is calculated based on an average price over a specific future period. Therefore, the option becomes path-dependent. The average price is measured by the power mean, which contains several existing option payoff functions as its special cases. Second, jump-diffusion stochastic models are used to describe the movement of the underlying spot market price, which incorporate several important statistical properties including jumps and spikes, non-normality, and absence of autocorrelations. A general option pricing algorithm is obtained based on Monte Carlo simulation. In addition, an explicit pricing formula is derived for the case when the option payoff is based on the geometric mean. This pricing formula is also a generalized version of several other option pricing models discussed in related studies [1], [2], [3], [4], [5], [6].

Strategic Pricing in Volatile Markets

Abstract: We study dynamic signaling in a game of stochastically evolving stakes. Our motivating example is dynamic limit pricing in markets with persistent demand shocks. An incumbent is privately informed about its costs, high or low, and can deter a potential entrant by setting prices strategically. The incumbent builds a reputation by maintaining low prices whenever the market reaches new lows and entry becomes a distant threat; equilibrium strategies thus exhibit path dependence, being functions of both the market's current size and its historical minimum. The model provides an explanation for rising prices in falling markets, which may have implications for antitrust policy. Variations of the model apply to predatory pricing and sovereign debt.

Does the Media Help or Hurt Retail Investors During the IPO Quiet Period

Abstract: We examine how the media influences retail trade and market returns during the “quiet period” that follows a firm’s IPO. We find that more media coverage during this period is associated with more purchases by retail investors and that such purchases are attention-driven, rather than information-based. Further, these retail trades are negatively associated with stock returns at the firm’s first earnings announcement post-IPO. Our results suggest that media coverage, combined with market frictions that limit price efficiency in the post-IPO period, leads to worse investing outcomes for retail investors.

Price and quantity competition with asymmetric costs in a mixed duopoly: a technical note

Abstract: We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positive primary outputs holds. However, compared to endogenous determination of the type of contract without cost asymmetry, our main finding is that in the wider range of cost asymmetry, different type(s) of equilibrium related to or not related to the limit‐pricing strategy of the private firm can be sustained. Thus, when considering an implication on privatization, we may overestimate the welfare gain of privatization because Cournot competition takes place after privatization even though cost asymmetry exists between firms. While the result of Matsumura and Ogawa (2012) holds true if the goods are complements, we find the novel results in the case of substitutes.

Interest Rates and Investment Under Competitive Screening and Moral Hazard

Abstract: This paper studies the effect of (market) interest rate changes on investment under competitive screening and moral hazard. Lower (higher) rates ease (hinder) the provision of incentives to entrepreneurs with positive NPV projects to invest in their best project but hinder (ease) banks' efforts to distinguish them from entrepreneurs with negative NPV projects. This might result in a hump-shaped investment curve. Under low rates, screening through limit pricing leaves insufficient profits to low-wealth entrepreneurs to invest in their best project, and consequently, several project qualities might co-exist in equilibrium. Several testable and other implications on the effectiveness of unconventional monetary policy to boost investment are discussed.

Fixed margin price undercutting: An adequate entry strategy in a market with switching costs?

Abstract: Purpose We try to determine the best strategy for entering a market with switching costs that is initially served by a monopolistic incumbent. Findings We show that an offer to undercut the incumbent by a fixed margin (FM) dominates traditional entry with a binding price offer (BO) as this conditional pricing strategy restrains the ability of the incumbent to block entry by limit pricing. Combining FM with a price ceiling (PC) insures customers against future price increases and turns out to be optimal for markets with elastic demand as long as cost uncertainty is not an issue. Conclusion Using a more elaborate entry strategy may facilitate entry in markets with switching costs. However, as these strategies may decrease welfare, they should be closely monitored by antitrust authorities.

Pro‐Consumer Price Ceilings under Regulatory Uncertainty

Abstract: We examine optimal price ceilings when the regulator is uncertain about demand and supply conditions and maximizes expected consumer surplus. We consider both a perfectly competitive benchmark and imperfectly competitive settings where symmetric firms compete in supply functions. Our analysis indicates that regulatory uncertainty does not eliminate the scope for intervention with a price ceiling. Instead, sufficient uncertainty calls for softer intervention, with the price ceiling set at a relatively high level. We formalize the relationship between competitive pressure and the optimal price ceiling and show that, if uncertainty is great enough, the optimal price ceiling is increasing in the degree of competition, so that greater competitive pressure justifies less restrictive regulatory intervention. For the perfectly competitive case, we also explore how the optimal price ceiling is related to the level of rationing efficiency, pinning down a cut-off level of efficiency below which a price ceiling should not be used.

Personalized Medicine and Personalized Pricing: Degrees of Price Discrimination

Abstract: Economics developed a set of three degrees of price discrimination dependent on whether the seller targets individuals or groups, and whether buyers wish to use quantity rebates. The seller’s reason to price discriminate is to capture as much of the buyers utility surplus. Price discrimination is deemed unfair and immoral, and this is especially so in the market for pharmaceutical therapies. However, sometimes it can indeed be socially useful to price discriminate as the practice, under circumstances, enhances efficiency and social welfare.

Method for automatically determining oil price in gas station and system thereof

Abstract: Disclosed are an automatic oil price determination method for a gas station and a system thereof. According to the method, oil price information is received from an oil price information providing server providing oil price information by gas station, and then, the oil price of a preset competitor gas station is extracted from the oil price information, and then, a competitive price calculated by applying a preset competitive price gap to the oil price of the competitor gas station is determined as an oil price for the specific gas station. At this point, between the step of extracting the oil price of the competitor gas station and the step of determining the oil price for the gas station, the oil price of a preset reference gas station is extracted from the oil price information, and a preset limit price gap is applied to the oil price of the reference gas station to calculate a limit price. During the step of determining the oil price for the specific gas station, the competitive price and the limit price are compared, and then, if the competitive price is no more than the limit price, the competitive price is determined as the oil price for the specific gas station, and if the competitive price exceeds the limit price, the limit price is determined as the oil price for the specific gas station.

Export Subsidies and Least Developed Countries: An Entry-Deterrence Model under Complete and Incomplete Information

Abstract: This paper shows that export subsidies may be harmful when they are used to support a technologically inferior firm relative to the competing foreign firm in the exporting market. To explain this, we consider a three-period entry deterrence model, where, particularly, the firms producing a homogeneous good compete a la Bertrand if entry occurs. Under complete information, only a subsidy policy can deter entry. We also investigate if the ‘no subsidy’ policy can deter entry under incomplete information, where the government’s policy on export subsidy is assumed to be unknown to the foreign firm. Following the Milgrom and Roberts (1982) model of limit pricing, in the separating equilibria, only the firm with a subsidy policy can deter entry. However, in the pooling equilibria, under a certain condition, even the firm without a subsidy policy can deter entry by setting the price which is different from its true monopoly price. The separating equilibria environment is preferred by the importing country than complete information due to the lower price.

How to Trade Events by Operators with Applications

Abstract: The present invention relates to a trade application using an event of a business operator. An embodiment of the present invention relates to a method for trading an event, which has various events of diverse restaurant business operators, which are mixed, including a convenient execution of a search for information on restaurants or menus on the application, and order, reservation, and payment using a FinTech method. According to the present invention, the method for trading an event of a business operator via the application comprises: a step of allowing a member to enter personal information excluding the resident registration number before participating in the event, which is an essential step; a step of allowing the member to search for a place with various negotiations and auction rooms in accordance with the region and to select and participate in a desired room; a step of notifying the time for ending the event of the room and ending the event; a step of checking an error to inspect if the finally entered price is outside a lower limit price (-20%) and an upper limit price (+20%) based on a specific price desired by the business operator; and a step of checking if the negotiation and auction has succeeded and checking the winner. Accordingly, the present invention is able to use not a simple electronic commerce method but an unconventional event, which extends a consumer′s convenience and increases the consumer′s interest by catching the consumer′s eyes, and to satisfy the consumer′s desires for various purchases. That is, the present invention is able to allow a member to taste the menus of restaurants at a low price while feeling interest, and to learn knowledge by reading the notifications provided before conducting an auction and a negotiation (knowledge related to the auction and negotiation), to extend the menu options for the consumers, to increase the publicity effect for the restaurant business operators, to revitalize the economy of the self-employed and small- and middle-sized merchants, and to revitalize the regional economy.

Can a Reinforcement Learning Trading Agent Beat Zero Intelligence Plus at Its Own Game

Abstract: We develop a simple trading agent that extends Cliff’s Zero Intelligence Plus (ZIP) strategy for trading in continuous double auctions. The ZIP strategy makes trading decisions using a deterministic hand-crafted and fixed mapping between states of the market corresponding to properties of recent order-flow and actions on the agent’s limit price (raise price, lower price, do nothing). In contrast, we situate the ZIP decision rules within a larger policy space by associating probabilities with state–action pair, and allow the agent to learn the optimal policy by adjusting these probabilities using Q-learning. Because we use the same state and action space as ZIP, the resulting policies have virtually identical computational overhead to the original strategy, but with the advantage that we can retrain our strategy to find optimal policies in different trading environments. Using empirical methods, we found that our reinforcement learning agents are sometimes able to outperform the deterministic ZIP agent in at least one scenario.