Theory and evidence on pricing by asymmetric oligopolies

We present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good, such as software, music, book or a brand-name appliance. We show that two forms of asymmetry, one related to loyal segment sizes of retailers and one related to the positioning of firms, completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers. The stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

Competitive Imperfect Price Discrimination and Market Power

Two duopolists compete on price in the market for a homogeneous product. They can “profile” consumers, that is, identify their valuations with some probability. If both firms can profile consumers but with different abilities, then they achieve positive expected profits at equilibrium. This provides a rationale for firms to (partially and unequally) share data about consumers or for data brokers to sell different customer analytics to competing firms. Consumers prefer that both firms profile exactly the same set of consumers or that only one firm profiles consumers as this entails marginal cost pricing (so does a policy requiring list prices to be public). Otherwise, more protective privacy regulations have ambiguous effects on consumer surplus

Food Retailers' Pricing and Marketing Strategies, with Implications for Producers

This paper examines grocery retailers' ability to influence prices charged to consumers and paid to suppliers. We discuss how retailer market power manifests itself in terms of pricing and marketing strategies by setting forth and offering evidence in support of eight "stylized facts" of retailer pricing and brand decisions. We argue that little, if any, of this behavior can be explained by a model of a competitive, price-taking retailer, but that most of the indicated behavior was also inconsistent with traditional models of market power. Finally, we discuss the impacts of aspects of this retailer behavior on the upstream farm sector.grocery retailer, market power, price spread, sales, Agribusiness, Marketing,

Music Aggregators and Intermediation of the Digital Music Market

This article demonstrates that, contrary to popular belief, the advent of the Internet has not made intermediaries in the music market obsolete. Individual artists and independent record labels who want to sell their music in digital music stores must deliver their records via third-party companies called music aggregators. Drawing on the concepts of new institutional economics, the article demonstrates that the emergence of music aggregators is a market response to the high level of transaction costs and bargaining asymmetry associated with selling digital music online. The conclusion suggests that the major music conglomerates may seek ownership links with music aggregators, leading to the emergence of vertically integrated companies, which may have profound consequences for cultural markets

"Asymmetric Market Shares, Advertising, and Pricing: Equilibrium with an Information Gatekeeper"

We analyze the impact of market share on advertising and pricing decisions by firms that sell to loyal, non-shopping customers and can advertise to shoppers through an information intermediary or "gatekeeper." In equilibrium the firm with the smaller loyal market advertises more aggressively but prices less competitively than the firm with the larger loyal market, and there is no equilibrium in which both firms advertise with probability 1. The results differ significantly from earlier literature which assumes all prices are revealed to shoppers and finds that the firm with the smaller loyal market adopts a more competitive pricing strategy. The predictions of the model are consistent with advertising and pricing behavior observed on price comparison websites such as Shopper.com.online markets, E-commerce, market share, information gatekeeper, equilibrium price dispersion, advertising

TRANSPARENCY AND BIDDING COMPETITION IN INTERNATIONAL WHEAT TRADE

One of the major trade policy problems identified by U.S. interests, including grower groups, traders, and policymakers, is that of pricing transparency. This has been a gnawing issue generally related to the pricing practices of competitor exporting countries with state trading enterprises (STEs). The transparency problem generally refers to the inability to observe rivals' terms of trade (including price, quality, credit, etc.) and is normally associated with commercial exporters competing against STE rivals. The perception being the less transparent competitors (STEs) would have a strategic advantage. A game theory model of bidding competition was developed to simulate the effects of information asymmetry amongst rivals. A Bayes-Nash equilibrium was used to derive equilibrium solutions. Several stylized examples were used to illustrate aspects of competition and to analyze effects on bidding strategies. Results indicate that: 1) anything that reduces uncertainties among rivals would reduce equilibrium bids and prices; 2) bidding situations in which there is less transparency have the effect of increasing bids and prices to buyers, and payoffs to sellers; and 3) increases in the number of rivals have the effect of reducing bids and mitigating the informational advantages of STEs. In all cases, less transparent sellers have an advantage in bidding competition relative to more transparent sellers. That advantage in our stylized case was in the area of 1-2$/mt. However, that advantage is mitigated with an increase in the number of transparent rivals and in the case where more transparent players have acted as agents for an STE and have more information about costs of an STE. Further, cessation of exports under U.S. EEP programs should have decreased the transparency of U.S. firms, increasing their competitiveness in the international grain trade.Price Transparency, Strategic Bidding, Game Theory, Bayesian-Nash, State Trading Enterprises, Export Enhancement Program, Wheat, International Relations/Trade,

Electronic Commerce, Consumer Search and Retailing Cost Reduction

This paper explains four things in a unified way. First, how e-commerce can generate price equilibria where physical shops either compete with virtual shops for consumers with Internet access, or alternatively, sell only to consumers with no Internet access. Second, how these price equilibria might involve price dispersion on-line. Third, why prices may be higher on-line. Fourth, why established firms can, but need not, be more reluctant than newly created firm to adopt e-commerce. For this purpose we develop a model where e-commerce reduces consumers' search costs, involves trade-offs for consumers, and reduces retailing costs.Comment: 29th TPRC Conference, 200