A Simple Model of Pricing, Markups and Market. Power Under Demand Fluctuations


 Meryl Watson
 2 years ago
 Views:
Transcription
1 A Simle Model of Pricing, Markus and Market Power Under Demand Fluctuations Stanley S. Reynolds Deartment of Economics; University of Arizona; Tucson, AZ Bart J. Wilson Economic Science Laboratory; University of Arizona; Tucson, AZ March 2001 Preliminary Draft: Please do not cite without authors ermission. Abstract: This aer formulates and analyzes a relatively simle model of duooly ricing under conditions of fluctuating demand. Pricesetting firms roduce a homogenous roduct subject to increasing marginal cost of roduction. We focus on static Nash equilibria in rice choices and examine the imact of varying the level of demand on equilibrium rice levels, markus of rice over marginal cost, and rice variability. Price variability can arise because equilibria may involve mixed strategies in rices. For a articular class of demand and cost conditions, we find the following imact of increasing the level of demand: 1) The average level of rices rises, 2) Average markus of rice over marginal cost may rise or fall, and 3) Price variability falls. The class of demand and cost conditions for which these results aly is a secial class. But we believe that it is not so secial that it could not cature the essential demand and technology conditions that drive ricing decisions in a variety of different industries. Our main oint is that models much simler than otimal collusion models are caable of exlaining interesting atterns of ricing and markus as demand fluctuates.
2 1. Introduction Questions regarding market ower and how firms exercise market ower as demand fluctuates have received a great deal of attention in the Industrial Organization literature. A articularly influential hyothesis is that firms with market ower may actually set higher markus of rice over marginal cost when demand is low  e.g., in a recession  than when demand is high  e.g., in a boom eriod. Rotemberg and Saloner (1986) and Bagwell and Staiger (1997) show that countercyclical markus may arise in models in which firms utilize an otimal collusion mechanism. These mechanisms require firms to adot fairly comlex strategies that would unish rival firms that defect from an agreed uon ricing attern. This aer formulates and analyzes a relatively simle model of duooly ricing under conditions of fluctuating demand. Pricesetting firms roduce a homogenous roduct subject to increasing marginal cost of roduction. We focus on static Nash equilibria in rice choices and examine the imact of varying the level of demand on equilibrium rice levels, markus of rice over marginal cost, and rice variability. Price variability can arise because equilibria may involve mixed strategies in rices. For a articular class of demand and cost conditions, we find the following imact of increasing the level of demand: 1) The average level of rices rises, 2) Average markus of rice over marginal cost may rise or fall, 3) Price variability falls. The reader will see that the class of demand and cost conditions for which these results aly is a secial class. But we believe that it is not so secial that it could not cature the 1
3 essential demand and technology conditions that drive ricing decisions in a variety of different industries. Our main oint in roviding these results is that models much simler than otimal collusion models are caable of exlaining interesting atterns of ricing and markus as demand fluctuates. 2. Model We analyze a duooly model of ricing in a homogeneous roduct market. Our analysis is in the sirit of the literature on BertrandEdgeworth ricing models in which firms have roduction caacity constraints. We relax the assumtions of fixed caacity and constant marginal cost u to caacity. Instead, we allow for general uward sloing marginal cost curves. This aroach will allow us to consider a firm s marginal cost at all outut levels, and to evaluate markus of rice over marginal cost. For conventional BertrandEdgeworth models, the marku is undefined if a firm is roducing at full caacity. On the demand side we secify a simle ste demand function. This assumtion on the form of demand yields a tractable model for which Nash equilibrium rice distributions may be characterized and calculated. Product demand is described by a simle ste function with two arameters, v and d. v indicates the maximum willingness to ay for each of the first d units roduced. For any units beyond d, the willingness to ay is zero. We will examine variations in the level of demand by varying arameter d. Each firm i has a differentiable cost function c x ) that indicates the total cost of roducing outut x i. The cost function is assumed to be increasing and strictly convex, which imlies that marginal cost is strictly increasing. In addition, we assume that 0 c (0) < v, so that firms have an incentive to roduce at least some outut. Let s( ) ( i 2
4 arg max be defined by, s( ) { x c( x)}, where K is a arameter that exceeds the x [0, K] largest value of d used in our analysis. This would be the suly function for a firm if the firm were to oerate as a ricetaker in a cometitive market; s( ) corresonds to the inverse of the marginal cost function. Our modeling orientation is that c x ) is a short run total cost function for a firm that has already chosen some fixed inuts, such as caital. Firms engage in rice cometition in the short run, given current demand conditions as summarized by arameter d. We assume that firms have identical cost functions. This ermits us to focus on symmetric equilibria in our analysis of the Nash equilibrium ricing game. Demand and suly conditions that result from our assumtions are illustrated in Figure One. The demand curve is a ste function, with a maximum of d units demanded at a ositive rice. The suly curve for a single firm is s; the market suly curve for two firms is 2s. For the demand and suly conditions in Figure One, a cometitive rice is determined by the intersection of 2s with the vertical segment of the demand. Throughout this discussion we assume that the level of demand, d, satisfies: s( v) < d 2s( v). That is, the level of demand is between the amount that a single firm would be willing to suly at the maximum rice, and the amount that two firms would be willing to suly at the maximum rice. ( i 3
5 Figure One Demand and Suly Conditions $ v s 2s c c (0) d outut 3. Benchmark Cases In this section we summarize the imact of demand fluctuations for three different modes of market behavior: erfect cometition, Cournot quantity cometition, and monooly. These results rovide benchmarks against which results from a Nash equilibrium model of rice setting firms may be comared. If firms behave as erfect cometitors then the rice is given by the intersection of demand and suly. This is illustrated by the rice c in Figure One. In a cometitive equilibrium the rice is equal to marginal cost for each firm, so that there is no marku of rice over marginal cost. As demand arameter d increases, the cometitive equilibrium rice rises, since the suly function 2s() is strictly increasing in. 4
6 Suose instead that the two firms form a cartel that maximizes joint rofit. That is, the firms oerate as a single rofit maximizing monooly with the combined assets of the two firms. 1 The marginal cost curve for the cartel corresonds to the market suly curve for the two firms (2s in Figure One). The marginal revenue for the cartel is equal to v for outut u to d. The rofit maximizing outut is equal to d, since MR MC for cartel outut less than d; each firm roduces outut d/2 to minimize cartel cost. The cartel rice is v. As demand increases, the rice remains constant at v and the marku of rice over marginal cost falls, since marginal cost is increasing in outut for each firm. Now suose that the two firms oerate as Cournot quantitysetting duoolists. For any fixed outut choice x of a rival firm, a firm has marginal revenue of outut equal to v for outut u to d  x. As long as rival outut x is greater than or equal to d  s(v) a firm has an incentive to exand its outut until total outut is equal to d. A Cournot equilibrium involves a rice v and total outut of the two firms that sums to d. The symmetric Cournot equilibrium involves each firm choosing outut d/2; the equilibrium outcome is identical to the cartel outcome. 2 As d increases, the symmetric Cournot equilibrium rice remains constant at v and the marku of rice over marginal cost falls, just as in the cartel case. The monooly/cartel and Cournot duooly results suggest that countercyclical markus of rice over marginal cost can arise in very simle models in which firms have market ower. The main features that contribute to this result are increasing short run marginal costs and a demand function that gives firms little or no ability to raise rices as demand increases. 5
7 4. PriceSetting Firms We analyze a static game of simultaneous rice choice by the two firms. Each firm i chooses rice i from the interval, [ c (0), v]. The individual demand function for firm i when it chooses rice i and its rival chooses j is, (1) D(, i j d, ) = 1 d 2 d s( j ) if if if i i i < = > j j j We assume that firms roduce to order. A firm s sales are given by, (2) x, ) = min{ s( ), D(, )}. ( i j i i j A firm with rice i would not want to sell more than s( i ) even if customers wished to urchase more, since the extra sales would involve marginal cost that exceeds the rice. The rofit function for firm i is, (3) π, ) = x(, ) c( x(, )). ( i j i i j i j This rofit function is continuous in both rices excet when rices are equal. When rices are equal, a small decrease in rice i would yield a discrete increase in sales and rofits for firm i. There is no ure strategy Nash equilibrium for this ricing game. If a firm sets its rice equal to the cometitive rice then the best resonse of its rival is to set its rice equal to v. If a firm sets its rice above the cometitive rice then its rival would earn more by undercutting this rice by a small amount than by matching this rice. For any air of rices, ), at least one firm would wish to change their rice, given the rice of their rival. ( 1 2 6
8 PROPOSITION ONE: A mixed strategy equilibrium exists. The roof of this is fairly standard and can be constructed along the lines of Dixon (1984) and Maskin (1986). 3 These two aers, along with Allen and Hellwig (1986), rovide mixed strategy equilibrium existence results for ricing games in which firms have continuous, increasing cost functions. Thus, they generalize existence beyond the BertrandEdgeworth framework in which firms have fixed caacity constraints and constant marginal cost u to caacity. The three aers cited above focus on existence of equilibria rather than on characterization or calculation of equilbria. The next roosition characterizes a symmetric equilibrium for the ste demand formulation. Following this, we reort calculations of equilibrium outcomes for varying demand levels. PROPOSITION TWO: A symmetric mixed strategy equilibrium exists with suort, [, v] and c.d.f. F() defined by: (4) s( ) + [ d s( y) s( )] F ( y) dy F ( ) =. s( ) c( s( )) [( d s( )) c( d s( ))] There are no mass oints for this distribution. The lower bound of the suort exceeds the cometitive rice and satisfies the conditions, F ( ) = 0 and F ( ) d = 1, where F () is defined by (4). Proof: (not included) There is a symmetric mixed strategy equilibrium with suort that begins above the cometitive rice and extends u to the maximum rice, v. Exected rofit for a firm must be constant for all rices in the suort, given that its rival lays the equilibrium distribution. Taking the derivative of exected rofit with resect to rice yields an v 7
9 integrodifferential equation in F. This equation may be transformed into a Volterra equation of the second kind; this is equation (4). 4 We conjecture that the mean of the equilibrium distribution is increasing in arameter d, and that the variance of the distribution is decreasing in d, for d ( s( v),2s( v)). We do not as of yet have a general roof of this result. In Table One we reort the results of numerical calculations that are consistent with our conjecture. There are standard rocedures for numerical aroximation of the solution of an equation of this tye. 5 For each value of d, the lower bound of the suort of the rice distribution must be chosen so that the cdf that is calculated attains a value of unity at a rice equal to v. We also reort calculations of average ricecost markus in Table One. For the case of ricesetting firms, we use a MonteCarlo simulation based on 10,000 airs of rice draws from the equilibrium distribution to calculate the markus. The ercentage marku for the NE ricing model falls from 28 % to 22 % to zero as d increases from 30 to 40 to 50. This attern of falling exected markus as d rises does not always emerge. For other numerical examles we have calculated, the exected marku first rises and then falls as d increases. 8
10 Table One Numerical Examle: Imact of Changes in Demand (d)* Perfect Cometition Mixed Strategy NE Cournot/Monooly d Min(rice) E(rice) Var(rice) E((riceMC)/rice) ρ 1/ ρ * This examle has v = 40 and cost function, c ( x) = w( x k ), with arameters w = 10, k = 50, and ρ = 1; this cost function is derived from a CES roduction function with variable inut rice w, fixed inut quantity k, and elasticity of substitution 1/( ρ 1). ρ 9
11 Endnotes 1. The cartel solution described in the text does not take incentives to defect from the agreement into account. The otimal collusion mechanism aroach could be alied to our model to address the issue of otential defection from a cartel agreement. 2. There will also be asymmetric Cournot equilibria as long as d < 2s(v). 3. Our market demand function is discontinuous at a rice equal to v; this is a violation of their assumtions about demand. But since v is the monooly rice and firms would never choose a rice greater than v, we can restrict attention to rices less than or equal to v. The market demand is continuous (constant, in fact) for rices less than or equal to v. 4. Brunner (1988) shows how a class of integrodifferential equations may be transformed into Volterra equations of the second kind. The equation for F generated by the equilibrium conditions for our roblem fits within this class. 5. See chater 18, section 2 in Press, et al (1992). 10
12 References Allen, B. and Hellwig, M., "Pricesetting firms and the oligoolistic foundations of erfect cometition", American Economic Review, vol. 76, May (1986). Bagwell, K. and Staiger, R., "Collusion over the Business Cycle", RAND Journal of Economics, vol. 28, Sring (1997). Brunner, H., "The numerical solution of initialvalue roblems for integrodifferential equations", in Numerical Analysis 1987, edited by D.A. Griffiths and G.A. Watson, John Wiley & Sons, Inc.: New York, Dixon, H., "The existence of mixedstrategy equilibria in a ricesetting oligooly with convex costs", Economics Letters, vol. 16 (1984). Maskin, E., "The existence of equilibrium with ricesetting firms", American Economic Review, vol. 76, May (1986). Press, W.H., Vetterling, W.T., Teukolsky, S.A., and Flannery, B.A., Numerical Reciies in FORTRAN 77, 2 nd edition, Cambridge University Press: New York, Rotemberg, J. and Saloner, G., "A suergametheoretic model of rice wars during booms", American Economic Review, vol. 76, May (1986). 11
Economics 431 Fall 2003 2nd midterm Answer Key
Economics 431 Fall 2003 2nd midterm Answer Key 1) (20 oints) Big C cable comany has a local monooly in cable TV (good 1) and fast Internet (good 2). Assume that the marginal cost of roducing either good
More informationOn Software Piracy when Piracy is Costly
Deartment of Economics Working aer No. 0309 htt://nt.fas.nus.edu.sg/ecs/ub/w/w0309.df n Software iracy when iracy is Costly Sougata oddar August 003 Abstract: The ervasiveness of the illegal coying of
More informationChapter 9 Profit Maximization
Chater 9 Profit Maximization Economic theory normally uses the rofit maximization assumtion in studying the firm just as it uses the utility maximization assumtion for the individual consumer. This aroach
More informationClass 4: Monopoly and Market Power. Power to affect market price or the ability to set price above marginal cost Monopoly power and monopsony power
Class 4: Monooly and Market Power. Market ower Power to affect market rice or the ability to set rice above marginal cost Monooly ower and monosony ower An examle of monosony ower: The big3 and their
More informationc 2009 Je rey A. Miron 3. Examples: Linear Demand Curves and Monopoly
Lecture 0: Monooly. c 009 Je rey A. Miron Outline. Introduction. Maximizing Pro ts. Examles: Linear Demand Curves and Monooly. The Ine ciency of Monooly. The Deadweight Loss of Monooly. Price Discrimination.
More informationc 2009 Je rey A. Miron We have seen how to derive a rm s supply curve from its MC curve.
Lecture 9: Industry Suly c 9 Je rey A. Miron Outline. Introduction. ShortRun Industry Suly. Industry Equilibrium in the Short Run. Industry Equilibrium in the Long Run. The LongRun Suly Curve. The Meaning
More informationc 2007 Je rey A. Miron 6. The Meaning of Zero Pro ts: Fixed Factors and Economic Rent
Lecture : Industr Sul. c Je re A. Miron Outline. Introduction. ShortRun Industr Sul. Industr Equilibrium in the Short Run. Industr Equilibrium in the Long Run. The LongRun Sul Curve. The Meaning of Zero
More informationReDispatch Approach for Congestion Relief in Deregulated Power Systems
ReDisatch Aroach for Congestion Relief in Deregulated ower Systems Ch. Naga Raja Kumari #1, M. Anitha 2 #1, 2 Assistant rofessor, Det. of Electrical Engineering RVR & JC College of Engineering, Guntur522019,
More informationLarge firms and heterogeneity: the structure of trade and industry under oligopoly
Large firms and heterogeneity: the structure of trade and industry under oligooly Eddy Bekkers University of Linz Joseh Francois University of Linz & CEPR (London) ABSTRACT: We develo a model of trade
More informationMonopoly. Monopoly. Causes of Monopolies. Profit Maximization. ECON 370: Microeconomic Theory. Summer 2004 Rice University Stanley Gilbert
Monool market with a single seller Monool ECON 370: Microeconomic Theor Firm demand = market demand Firm demand is downward sloing Monoolist can alter market rice b adjusting its own outut level Summer
More informationTHE WELFARE IMPLICATIONS OF COSTLY MONITORING IN THE CREDIT MARKET: A NOTE
The Economic Journal, 110 (Aril ), 576±580.. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 50 Main Street, Malden, MA 02148, USA. THE WELFARE IMPLICATIONS OF COSTLY MONITORING
More informationJoint Production and Financing Decisions: Modeling and Analysis
Joint Production and Financing Decisions: Modeling and Analysis Xiaodong Xu John R. Birge Deartment of Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208,
More informationagents (believe they) cannot influence the market price agents have all relevant information What happens when neither (i) nor (ii) holds?
Information and strategic interaction Assumtions of erfect cometition: (i) (ii) agents (believe they) cannot influence the market rice agents have all relevant information What haens when neither (i) nor
More informationPiracy and Network Externality An Analysis for the Monopolized Software Industry
Piracy and Network Externality An Analysis for the Monoolized Software Industry Ming Chung Chang Deartment of Economics and Graduate Institute of Industrial Economics mcchang@mgt.ncu.edu.tw Chiu Fen Lin
More informationwhere a, b, c, and d are constants with a 0, and x is measured in radians. (π radians =
Introduction to Modeling 3.61 3.6 Sine and Cosine Functions The general form of a sine or cosine function is given by: f (x) = asin (bx + c) + d and f(x) = acos(bx + c) + d where a, b, c, and d are constants
More informationAn important observation in supply chain management, known as the bullwhip effect,
Quantifying the Bullwhi Effect in a Simle Suly Chain: The Imact of Forecasting, Lead Times, and Information Frank Chen Zvi Drezner Jennifer K. Ryan David SimchiLevi Decision Sciences Deartment, National
More informationEquilibrium price dispersion under demand uncertainty: the roles of costly capacity and market structure
RAND Journal of Economics Vol. 30, No. 4, Winter 1999. 632 660 Equilibrium rice disersion under demand uncertainty: the roles of costly caacity and market structure James D. Dana, Jr.* When caacity is
More informationHow Does A Perfectly Competitive Market Reach Long Run Equilibrium?
How Does A erfectly Competitive Market Reach Long Run Equilibrium? Sidebyside graph for perfectly completive industry and firm. Is the firm making a profit or a loss? Why? S $15 $15 MR=D AVC D 5000 Industry
More informationMultiperiod Portfolio Optimization with General Transaction Costs
Multieriod Portfolio Otimization with General Transaction Costs Victor DeMiguel Deartment of Management Science and Oerations, London Business School, London NW1 4SA, UK, avmiguel@london.edu Xiaoling Mei
More informationRisk and Return. Sample chapter. e r t u i o p a s d f CHAPTER CONTENTS LEARNING OBJECTIVES. Chapter 7
Chater 7 Risk and Return LEARNING OBJECTIVES After studying this chater you should be able to: e r t u i o a s d f understand how return and risk are defined and measured understand the concet of risk
More informationPrice Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W
Price Elasticity of Demand MATH 104 and MATH 184 Mark Mac Lean (with assistance from Patrick Chan) 2011W The rice elasticity of demand (which is often shortened to demand elasticity) is defined to be the
More informationThe Economics of the Cloud: Price Competition and Congestion
Submitted to Oerations Research manuscrit The Economics of the Cloud: Price Cometition and Congestion Jonatha Anselmi Basque Center for Alied Mathematics, jonatha.anselmi@gmail.com Danilo Ardagna Di. di
More informationWorking paper No: 23/2011 May 2011 LSE Health. Sotiris Vandoros, Katherine Grace Carman. Demand and Pricing of Preventative Health Care
Working aer o: 3/0 May 0 LSE Health Sotiris Vandoros, Katherine Grace Carman Demand and Pricing of Preventative Health Care Demand and Pricing of Preventative Healthcare Sotiris Vandoros, Katherine Grace
More informationThe Economics of the Cloud: Price Competition and Congestion
Submitted to Oerations Research manuscrit (Please, rovide the manuscrit number!) Authors are encouraged to submit new aers to INFORMS journals by means of a style file temlate, which includes the journal
More informationDAYAHEAD ELECTRICITY PRICE FORECASTING BASED ON TIME SERIES MODELS: A COMPARISON
DAYAHEAD ELECTRICITY PRICE FORECASTING BASED ON TIME SERIES MODELS: A COMPARISON Rosario Esínola, Javier Contreras, Francisco J. Nogales and Antonio J. Conejo E.T.S. de Ingenieros Industriales, Universidad
More informationChapter Three. Topics To Be Covered
Chater Three Alying the SulyandDemand Model Toics To Be Covered How the shaes of demand and suly curves matter? Sensitivity of quantity demanded to rice. Sensitivity of quantity sulied to rice. Long run
More informationOligopoly and Strategic Pricing
R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small
More informationUNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION
UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION San Diego Gas & Electric Comany, ) EL0095075 Comlainant, ) ) v. ) ) ) Sellers of Energy and Ancillary Services ) Docket Nos. Into Markets
More informationTworesource stochastic capacity planning employing a Bayesian methodology
Journal of the Oerational Research Society (23) 54, 1198 128 r 23 Oerational Research Society Ltd. All rights reserved. 165682/3 $25. www.algravejournals.com/jors Tworesource stochastic caacity lanning
More informationSang Hoo Bae Department of Economics Clark University 950 Main Street Worcester, MA 016101477 508.793.7101 sbae@clarku.edu
Outsourcing with Quality Cometition: Insights from a Three Stage Game Theoretic Model Sang Hoo ae Deartment of Economics Clark University 950 Main Street Worcester, M 016101477 508.793.7101 sbae@clarku.edu
More informationLarge firms and heterogeneity: the structure of trade and industry under oligopoly
Large firms and heterogeneity: the structure of trade and industry under oligooly Eddy Bekkers University of Linz Joseh Francois University of Linz & CEPR (London) ABSTRACT: We develo a model with endogeneity
More informationInterbank Market and Central Bank Policy
Federal Reserve Bank of New York Staff Reorts Interbank Market and Central Bank Policy JungHyun Ahn Vincent Bignon Régis Breton Antoine Martin Staff Reort No. 763 January 206 This aer resents reliminary
More informationReference Pricing with Endogenous Generic Entry
Reference Pricing with Endogenous Generic Entry Kurt R. Brekke, Chiara Canta, Odd Rune Straume Aril 18, 2016 Abstract Reference ricing intends to reduce harmaceutical exenditures by increasing demand elasticity
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationChapter 14. Oligopoly and Monopolistic Competition. Anyone can win unless there happens to be a second entry. George Ade
Chapter 14 Oligopoly and Monopolistic Competition Anyone can win unless there happens to be a second entry. George Ade Chapter 14 Outline 14.1 Market Structures 14.2 Cartels 14.3 Noncooperative Oligopoly
More informationEstimating the Gains from Liberalizing Services Trade: The Case of Passenger Aviation *
Estimating the Gains from Liberalizing Services Trade: The Case of Passenger Aviation * Anca Cristea, University of Oregon avid Hummels, Purdue University & NBER Brian Roberson, Purdue University March
More informationPrice competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
More informationThe Competitiveness Impacts of Climate Change Mitigation Policies
The Cometitiveness Imacts of Climate Change Mitigation Policies Joseh E. Aldy William A. Pizer 2011 RPP201108 Regulatory Policy Program MossavarRahmani Center for Business and Government Harvard Kennedy
More informationImperfect Competition: Monopoly
Ierfect Coetition: Monooly New Toic: Monooly Q: What is a onooly? A onooly is a fir that faces a downward sloing deand, and has a choice about what rice to charge an increase in rice doesn t send ost or
More informationAsymmetric Information, Transaction Cost, and. Externalities in Competitive Insurance Markets *
Asymmetric Information, Transaction Cost, and Externalities in Cometitive Insurance Markets * Jerry W. iu Deartment of Finance, University of Notre Dame, Notre Dame, IN 465565646 wliu@nd.edu Mark J. Browne
More informationA Customer Management Dilemma: When Is It Profitable to Reward Own Customers?
Customer Management Dilemma: When Is It Profitable to Reward Own Customers? Jiwoong Shin and K. Sudhir * Yale University Forthcoming in Marketing Science. * The authors thank the editor, the area editor,
More informationService Network Design with Asset Management: Formulations and Comparative Analyzes
Service Network Design with Asset Management: Formulations and Comarative Analyzes Jardar Andersen Teodor Gabriel Crainic Marielle Christiansen October 2007 CIRRELT200740 Service Network Design with
More informationBertrand with complements
Microeconomics, 2 nd Edition David Besanko and Ron Braeutigam Chapter 13: Market Structure and Competition Prepared by Katharine Rockett Dieter Balkenborg Todd Kaplan Miguel Fonseca Bertrand with complements
More informationSoftmax Model as Generalization upon Logistic Discrimination Suffers from Overfitting
Journal of Data Science 12(2014),563574 Softmax Model as Generalization uon Logistic Discrimination Suffers from Overfitting F. Mohammadi Basatini 1 and Rahim Chiniardaz 2 1 Deartment of Statistics, Shoushtar
More informationX How to Schedule a Cascade in an Arbitrary Graph
X How to Schedule a Cascade in an Arbitrary Grah Flavio Chierichetti, Cornell University Jon Kleinberg, Cornell University Alessandro Panconesi, Saienza University When individuals in a social network
More informationService Network Design with Asset Management: Formulations and Comparative Analyzes
Service Network Design with Asset Management: Formulations and Comarative Analyzes Jardar Andersen Teodor Gabriel Crainic Marielle Christiansen October 2007 CIRRELT200740 Service Network Design with
More informationCFRI 3,4. Zhengwei Wang PBC School of Finance, Tsinghua University, Beijing, China and SEBA, Beijing Normal University, Beijing, China
The current issue and full text archive of this journal is available at www.emeraldinsight.com/20441398.htm CFRI 3,4 322 constraints and cororate caital structure: a model Wuxiang Zhu School of Economics
More informationAn optimal batch size for a JIT manufacturing system
Comuters & Industrial Engineering 4 (00) 17±136 www.elsevier.com/locate/dsw n otimal batch size for a JIT manufacturing system Lutfar R. Khan a, *, Ruhul. Sarker b a School of Communications and Informatics,
More informationWe are going to delve into some economics today. Specifically we are going to talk about production and returns to scale.
Firms and Production We are going to delve into some economics today. Secifically we are going to talk aout roduction and returns to scale. firm  an organization that converts inuts such as laor, materials,
More informationSolution to Selected Questions: CHAPTER 12 MONOPOLISTIC COMPETITION AND OLIGOPOLY
Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy 900 (Section ) Chairat Aemkulwat Economics I: Microeconomics Spring 05 Solution to Selected Questions: CHAPTER MONOPOLISTIC
More informationManagerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings
More informationTitle: Stochastic models of resource allocation for services
Title: Stochastic models of resource allocation for services Author: Ralh Badinelli,Professor, Virginia Tech, Deartment of BIT (235), Virginia Tech, Blacksburg VA 2461, USA, ralhb@vt.edu Phone : (54) 2317688,
More informationRisk in Revenue Management and Dynamic Pricing
OPERATIONS RESEARCH Vol. 56, No. 2, March Aril 2008,. 326 343 issn 0030364X eissn 15265463 08 5602 0326 informs doi 10.1287/ore.1070.0438 2008 INFORMS Risk in Revenue Management and Dynamic Pricing Yuri
More informationSynopsys RURAL ELECTRICATION PLANNING SOFTWARE (LAPER) Rainer Fronius Marc Gratton Electricité de France Research and Development FRANCE
RURAL ELECTRICATION PLANNING SOFTWARE (LAPER) Rainer Fronius Marc Gratton Electricité de France Research and Develoment FRANCE Synosys There is no doubt left about the benefit of electrication and subsequently
More informationMonopoly vs. Compe22on. Theory of the Firm. Causes of Monopoly. Monopoly vs. Compe22on. Monopolis2c Markets P. Natural. Legal.
Monooly vs. Comeon Monooly Perfect Come,,on Theory of the Firm P Monooly s demand = Market demand (ΔQ P) P Firm s demand = Horizontal line ( Δ P does not change) Monoolisc Markets P d Q Monooly vs. Comeon
More informationLargeScale IP Traceback in HighSpeed Internet: Practical Techniques and Theoretical Foundation
LargeScale IP Traceback in HighSeed Internet: Practical Techniques and Theoretical Foundation Jun Li Minho Sung Jun (Jim) Xu College of Comuting Georgia Institute of Technology {junli,mhsung,jx}@cc.gatech.edu
More informationOn the predictive content of the PPI on CPI inflation: the case of Mexico
On the redictive content of the PPI on inflation: the case of Mexico José Sidaoui, Carlos Caistrán, Daniel Chiquiar and Manuel RamosFrancia 1 1. Introduction It would be natural to exect that shocks to
More informationUNIT 6. Pricing under different market structures. Perfect Competition
UNIT 6 ricing under different market structures erfect Competition Market Structure erfect Competition ure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the
More information6.4 The Basic Scheme when the Agent is Risk Averse
100 OPTIMAL COMPENSATION SCHEMES such that Further, effort is chosen so that ˆβ = ˆα = 0 e = δ The level of utility in equilibrium is strictly larger than the outside otion (which was normalized to zero
More informationAn Introduction to Risk Parity Hossein Kazemi
An Introduction to Risk Parity Hossein Kazemi In the aftermath of the financial crisis, investors and asset allocators have started the usual ritual of rethinking the way they aroached asset allocation
More informationDynamics of Open Source Movements
Dynamics of Oen Source Movements Susan Athey y and Glenn Ellison z January 2006 Abstract This aer considers a dynamic model of the evolution of oen source software rojects, focusing on the evolution of
More informationChapter 9 Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models McGrawHill/Irwin Copyright 2010 by the McGrawHill Companies, Inc. All rights reserved. Overview I. Conditions for Oligopoly?
More informationIs Exchange Rate PassThrough in Pork Meat Export Prices Constrained by the Supply of Live Hogs? 1
Is Exchange Rate PassThrough in Pork Meat Exort Prices Constrained by the Suly of Live Hogs? 1 JeanPhilie Gervais Canada research Chair in Agriindustries and International Trade Center for Research
More informationLoglikelihood and Confidence Intervals
Stat 504, Lecture 3 Stat 504, Lecture 3 2 Review (contd.): Loglikelihood and Confidence Intervals The likelihood of the samle is the joint PDF (or PMF) L(θ) = f(x,.., x n; θ) = ny f(x i; θ) i= Review:
More informationCOST CALCULATION IN COMPLEX TRANSPORT SYSTEMS
OST ALULATION IN OMLEX TRANSORT SYSTEMS Zoltán BOKOR 1 Introduction Determining the real oeration and service costs is essential if transort systems are to be lanned and controlled effectively. ost information
More informationDEPARTMENT OF ECONOMICS DISCUSSION PAPER SERIES
ISSN 14710498 DEPARTMENT OF ECONOMICS DISCUSSION PAPER SERIES MARGINAL COST PRICING VERSUS INSURANCE Simon Cowan Number 102 May 2002 Manor Road Building, Oxford OX1 3UQ Marginal cost ricing versus insurance
More informationWhat is Adverse Selection. Economics of Information and Contracts Adverse Selection. Lemons Problem. Lemons Problem
What is Adverse Selection Economics of Information and Contracts Adverse Selection Levent Koçkesen Koç University In markets with erfect information all rofitable trades (those in which the value to the
More informationProblem Set 6 Solutions
( Introduction to Algorithms Aril 16, 2004 Massachusetts Institute of Technology 6046J/18410J Professors Erik Demaine and Shafi Goldwasser Handout 21 Problem Set 6 Solutions This roblem set is due in recitation
More informationManaging specific risk in property portfolios
Managing secific risk in roerty ortfolios Andrew Baum, PhD University of Reading, UK Peter Struemell OPC, London, UK Contact author: Andrew Baum Deartment of Real Estate and Planning University of Reading
More informationPrice Discrimination in the Digital Economy*
Price Discrimination in the Digital Economy Drew Fudenberg (Harvard University) J. Miguel VillasBoas (University of California, Berkeley) May 2012 ABSTRACT With the develoments in information technology
More informationUnit 8. Firm behaviour and market structure: monopolistic competition and oligopoly
Unit 8. Firm behaviour and market structure: monopolistic competition and oligopoly Learning objectives: to understand the interdependency of firms and their tendency to collude or to form a cartel; to
More informationConfidence Intervals for CaptureRecapture Data With Matching
Confidence Intervals for CatureRecature Data With Matching Executive summary Caturerecature data is often used to estimate oulations The classical alication for animal oulations is to take two samles
More informationModeling Directions of Technical Change in Agricultural Sector *
Modeling Directions of Technical Change in gricultural Sector * Orachos aasintuwong rtachinda ** RE Working Paer o. 2554/ (June 20) * This aer is written during the author s visit to Graz Schumeter Centre,
More informationRelational Query Languages. Relational Algebra. Preliminaries. Formal Relational Query Languages. Relational Algebra: 5 Basic Operations
Relational Algebra R & G, Chater 4 By relieving the brain of all unnecessary work, a good notation sets it free to concentrate on more advanced roblems, and, in effect, increases the mental ower of the
More informationAn inventory control system for spare parts at a refinery: An empirical comparison of different reorder point methods
An inventory control system for sare arts at a refinery: An emirical comarison of different reorder oint methods Eric Porras a*, Rommert Dekker b a Instituto Tecnológico y de Estudios Sueriores de Monterrey,
More informationPenalty Interest Rates, Universal Default, and the Common Pool Problem of Credit Card Debt
Penalty Interest Rates, Universal Default, and the Common Pool Problem of Credit Card Debt Lawrence M. Ausubel and Amanda E. Dawsey * February 2009 Preliminary and Incomlete Introduction It is now reasonably
More informationA joint initiative of LudwigMaximilians University s Center for Economic Studies and the Ifo Institute for Economic Research
A joint initiative of LudwigMaximilians University s Center for Economic Studies and the Ifo Institute for Economic Research Area Conference on Alied Microeconomics  2 March 20 CESifo Conference Centre,
More informationStorage Basics Architecting the Storage Supplemental Handout
Storage Basics Architecting the Storage Sulemental Handout INTRODUCTION With digital data growing at an exonential rate it has become a requirement for the modern business to store data and analyze it
More informationHYPOTHESIS TESTING FOR THE PROCESS CAPABILITY RATIO. A thesis presented to. the faculty of
HYPOTHESIS TESTING FOR THE PROESS APABILITY RATIO A thesis resented to the faculty of the Russ ollege of Engineering and Technology of Ohio University In artial fulfillment of the requirement for the degree
More informationLeak Test of Sensors with the Test Medium compressed Air
DOI 10.516/sensor013/B7.3 Leak Test of Sensors with the Test Medium comressed Air Dr. Joachim Lasien CETA Testsysteme GmbH, MarieCurieStr. 3537, 4071 Hilden, GERMANY, EMail: joachim.lasien@cetatest.com
More informationNew Technology and Profits
Another useful comparative statics exercise is to determine how much a firm would pay to reduce its marginal costs to that of its competitor. This will simply be the difference between its profits with
More informationPricing the Internet. Outline. The Size of the Internet (Cont.) The Size of the Internet
Pricing the Internet Costas Courcoubetis thens University of Economics and Business and ICSFORTH Outline The growth of the internet The role of ricing Some ricing roosals Pricing in a cometitive framework
More informationINDIVIDUAL WELFARE MAXIMIZATION IN ELECTRICITY MARKETS INCLUDING CONSUMER AND FULL TRANSMISSION SYSTEM MODELING JAMES DANIEL WEBER
INDIVIDUAL WELFARE MAXIMIZATION IN ELECTRICITY MARKETS INCLUDING CONSUMER AND FULL TRANSMISSION SYSTEM MODELING BY JAMES DANIEL WEBER BS, University of Wisconsin  Platteville, 1995 MS, University of Illinois
More informationLecture 4: Nash equilibrium in economics: monopolies and duopolies
Lecture : Nash equilibrium in economics: monopolies and duopolies We discuss here an application of Nash equilibrium in economics, the Cournot s duopoly model. This is a very classical problem which in
More informationVariations on the Gambler s Ruin Problem
Variations on the Gambler s Ruin Problem Mat Willmott December 6, 2002 Abstract. This aer covers the history and solution to the Gambler s Ruin Problem, and then exlores the odds for each layer to win
More informationPrivate Label Positioning: Vertical vs. Horizontal Differentiation from the National Brand
Private Label Positioning: Vertical vs. Horizontal Differentiation from the National Brand By S. Chan Choi and Anne T. Coughlan May 004 Please do not uote or distribute without ermission. Marketing Deartment,
More informationSimulation and Verification of Coupled Heat and Moisture Modeling
Simulation and Verification of Couled Heat and Moisture Modeling N. Williams Portal 1, M.A.P. van Aarle 2 and A.W.M. van Schijndel *,3 1 Deartment of Civil and Environmental Engineering, Chalmers University
More informationCashintheMarket Pricing and Optimal Bank Bailout Policy 1
CashintheMaret Pricing and Otimal Ban Bailout Policy 1 Viral V. Acharya 2 London Business School and CEPR Tanju Yorulmazer 3 Ban of England J.E.L. Classification: G21, G28, G38, E58, D62. Keywords:
More informationPressure Drop in Air Piping Systems Series of Technical White Papers from Ohio Medical Corporation
Pressure Dro in Air Piing Systems Series of Technical White Paers from Ohio Medical Cororation Ohio Medical Cororation Lakeside Drive Gurnee, IL 600 Phone: (800) 4480770 Fax: (847) 855604 info@ohiomedical.com
More informationStochastic Derivation of an Integral Equation for Probability Generating Functions
Journal of Informatics and Mathematical Sciences Volume 5 (2013), Number 3,. 157 163 RGN Publications htt://www.rgnublications.com Stochastic Derivation of an Integral Equation for Probability Generating
More informationNEWSVENDOR PROBLEM WITH PRICING: PROPERTIES, ALGORITHMS, AND SIMULATION
Proceedings of the 2005 Winter Simulation Conference M. E. Kuhl, N. M. Steiger, F. B. rmstrong, and J.. Joines, eds. NEWSVENDOR PROBLEM WITH PRICING: PROPERTIES, LGORITHMS, ND SIMULTION Roger L. Zhan ISE
More informationWhere you are Where you need to be How you get there Market Intelligence Competitive Insights Winning Strategies
Where you are Where you need to be How you get there Market Intelligence Cometitive Insights Winning Strategies The industrial and B2B market research and strategy firm Dominate Your Markets Whether you
More informationIEEM 101: Inventory control
IEEM 101: Inventory control Outline of this series of lectures: 1. Definition of inventory. Examles of where inventory can imrove things in a system 3. Deterministic Inventory Models 3.1. Continuous review:
More informationEffect Sizes Based on Means
CHAPTER 4 Effect Sizes Based on Means Introduction Raw (unstardized) mean difference D Stardized mean difference, d g Resonse ratios INTRODUCTION When the studies reort means stard deviations, the referred
More informationCompensating Fund Managers for RiskAdjusted Performance
Comensating Fund Managers for RiskAdjusted Performance Thomas S. Coleman Æquilibrium Investments, Ltd. Laurence B. Siegel The Ford Foundation Journal of Alternative Investments Winter 1999 In contrast
More informationJena Research Papers in Business and Economics
Jena Research Paers in Business and Economics A newsvendor model with service and loss constraints Werner Jammernegg und Peter Kischka 21/2008 Jenaer Schriften zur Wirtschaftswissenschaft Working and Discussion
More informationA MOST PROBABLE POINTBASED METHOD FOR RELIABILITY ANALYSIS, SENSITIVITY ANALYSIS AND DESIGN OPTIMIZATION
9 th ASCE Secialty Conference on Probabilistic Mechanics and Structural Reliability PMC2004 Abstract A MOST PROBABLE POINTBASED METHOD FOR RELIABILITY ANALYSIS, SENSITIVITY ANALYSIS AND DESIGN OPTIMIZATION
More informationThe impact of metadata implementation on webpage visibility in search engine results (Part II) q
Information Processing and Management 41 (2005) 691 715 www.elsevier.com/locate/inforoman The imact of metadata imlementation on webage visibility in search engine results (Part II) q Jin Zhang *, Alexandra
More informationPresales, Leverage Decisions and Risk Shifting
Presales, Leverage Decisions and Risk Shifting Su Han Chan Professor Carey Business School Johns Hokins University, USA schan@jhu.edu Fang Fang AssociateProfessor School of Public Economics and Administration
More informationConsumer Price Index Dynamics in a Small Open Economy: A Structural Time Series Model for Luxembourg
Aka and Pieretii, International Journal of Alied Economics, 5(, March 2008, 3 Consumer Price Index Dynamics in a Small Oen Economy: A Structural Time Series Model for Luxembourg Bédia F. Aka * and P.
More information