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Limit price
About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.
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TL;DR: In this paper, a first look at the dynamic effects of customer poaching in homogeneous product markets, where firms need to invest in advertising to generate awareness, is presented, and it is shown that only the firm which advertises the highest price in the first period will engage in price discrimination.
Abstract: This paper is a first look at the dynamic effects of customer poaching in homogeneous product markets, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. It is shown that only the firm which advertises the highest price in the first period will engage in price discrimination, a practice that clearly benefits the discriminating firm. This poaching gives rise to ‘the race for discrimination effect,’ through which price discrimination may act actually to soften price competition rather than intensify it. As a result, all firms may become better off, even when only one of them can engage in price discrimination. This paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising. In markets with low or no advertising costs, allowing firms to price discriminate leads them to provide too little advertising, which is not good for consumers and overall welfare. Only in markets with high advertising costs, might firms overadvertise. Regarding the welfare effects, price discrimination is generally bad for welfare and consumer surplus, though good for firms.
83 citations
TL;DR: In this article, the authors consider the problem of a firm that faces a stochastic (Poisson) demand and must replenish from a market in which prices fluctuate, such as a commodity market.
Abstract: In this paper we consider the problem of a firm that faces a stochastic (Poisson) demand and must replenish from a market in which prices fluctuate, such as a commodity market. We describe the price evolution as a continuous stochastic process and we focus on commonly used processes suggested by the financial literature, such as the geometric Brownian motion and the Ornstein-Uhlenbeck process. It is well known that under variable purchase price, a price-dependent base-stock policy is optimal. Using the single-unit decomposition approach, we explicitly characterize the optimal base-stock level using a series of threshold prices. We show that the base-stock level is first increasing and then decreasing in the current purchase price. We provide a procedure for calculating the thresholds, which yields closed-form solutions when price follows a geometric Brownian motion and implicit solutions under the Ornstein-Uhlenbeck price model. In addition, our numerical study shows that the optimal policy performs much better than inventory policies that ignore future price evolution, because it tends to place larger orders when prices are expected to increase.
83 citations
TL;DR: In this article, the authors analyzed pharmaceutical pricing between and within countries to achieve second-best static and dynamic efficiency, and they distinguish countries with and without universal insurance, because insurance undermines patients' price sensitivity, potentially leading to prices above second best efficient levels.
Abstract: This paper analyzes pharmaceutical pricing between and within countries to achieve second-best static and dynamic efficiency. We distinguish countries with and without universal insurance, because insurance undermines patients’ price sensitivity, potentially leading to prices above second-best efficient levels. In countries with universal insurance, if each payer unilaterally sets an incremental cost-effectiveness ratio (ICER) threshold based on its citizens’ willingness-to-pay for health; manufacturers price to that ICER threshold; and payers limit reimbursement to patients for whom a drug is cost-effective at that price and ICER, then the resulting price levels and use within each country and price differentials across countries are roughly consistent with second-best static and dynamic efficiency. These value-based prices are expected to differ cross-nationally with per capita income and be broadly consistent with Ramsey optimal prices. Countries without comprehensive insurance avoid its distorting effects on prices but also lack financial protection and affordability for the poor. Improving pricing efficiency in these self-pay countries includes improving regulation and consumer information about product quality and enabling firms to price discriminate within and between countries. © 2013 The Authors. Health Economics published by John Wiley & Sons Ltd. Received 12 June 2012; Revised 11 July 2013; Accepted 6 November 2013
83 citations
TL;DR: In this article, the authors provided a statistical methodology to estimate the impact of oil price uncertainty on food prices and their correlation on the food price, and the theoretical model was applied to the oil-based Trinidad and Tobago and empirical results confirm the theoretical predictions.
83 citations
TL;DR: In this paper, the authors deal with several issues that may bias empirical tests against the law of one price and propose an expectation-augmented model to obtain a rational price expectation.
82 citations