Competition, Monopoly Maintenance, and Consumer Switching Costs

Significant attention has been paid to why a durable-goods producer with little or no market power would monopolize the maintenance market for its own product. This paper provides an explanation for this practice that is based on consumer switching costs and the choice of consumers between maintaining and replacing used units. In our explanation, if a firm does not monopolize the maintenance market for its own product, then consumers sometimes maintain used units when it would be efficient for the units to be replaced. In turn, the return to monopolizing the maintenance market is that the practice allows the firm to avoid this inefficiency. An interesting aspect of our analysis that has significant public-policy implications is that, in contrast to most previous explanations for why a durable-goods producer with little or no market power would monopolize the maintenance market for its own product, in our explanation the practice increases rather than decreases both social welfare and consumer welfare.durable goods; aftermarkets; switching costs

Antitrust Perspectives for Durable-Goods Markets

Markets for durable goods constitute an important part of the economy. In this paper I first briefly review the microeconomic theory literature on durable-goods markets, focusing mostly on the last ten years. I then discuss a number of my own recent analyses concerning optimal antitrust policy in durable-goods markets that mostly build on ideas in the larger literature. Specific topics covered include: (i) optimal antitrust policy for durable-goods mergers; (ii) practices that eliminate secondhand markets; (iii) tying in markets characterized by upgrades and switching costs; and (iv) antitrust policy for aftermarket monopolization in durable-goods markets.

Price Setting in a Forward-Looking Customer Market

We propose a new explanation for price rigidity. We show that if consumers form habits in individual goods, then firms face a time- inconsistency problem. The consumers’ habits imply that low prices in the future help attract customers in the present. Firms would therefore like to promise low prices in the future. But when the future arrives they have an incentive to exploit consumers’ habits and price gouge. In this model, unlike the standard no-habit model, nominal price rigidity is an equilibrium outcome. Equilibrium price rigidity can be sustained because rigid prices help firms overcome the time-inconsistency problem. If customers have incomplete information about firms’ desired prices, the optimal policy for the firm is to commit to a “price cap”. Our model therefore provides an explanation for the simultaneous existence of a rigid regular price and frequent sales, a pattern that is difficult to reconcile with existing menu cost models or price rigidity. Our model also explains survey evidence on firms’ fears of adverse customer reactions to price changes, the fact that firms make open commitments to customers not to change their prices, the tendency of price rigidity to increase with the frequency of repeat purchases and the tendency of prices to be more rigid to existing customers than new customers.Time-inconsistency, Price Rigidity, Habit Formation, Asymmetric Information.

Sensor enclosures: example application and implications for data coherence

Sensors deployed in natural environments, such as rivers, beaches and glaciers, experience large forces and damaging environmental conditions. Sensors need to be robust, securely operate for extended time periods and be readily relocated and serviced. The sensors must be housed in materials that mimic natural conditions of size, density, shape and roughness. We have developed an encasement system for sensors required to measure large forces experienced by mobile river sediment grains. Sensors are housed within two discrete cases that are rigidly conjoined. The inner case exactly fits the sensor, radio components and power source. This case can be mounted within outer cases of any larger size and can be precisely moulded to match the shapes of natural sediment. Total grain mass can be controlled by packing the outer case with dense material. Case design uses Solid-WorksTM software, and shape-matching involved 3D laser scanning of natural pebbles. The cases were printed using a HP DesignjetTM 3D printer that generates high precision parts that lock rigidly in place. The casings are watertight and robust. Laboratory testing produces accurate results over a wider range of accelerations than previously reported

Imputing consumption in the PSID using food demand estimates from the CEX

In this paper we discuss an empirical strategy that allows researchers to impute consumptiondata from the CEX to the PSID. The strategy consists of inverting a demand for food equationestimated in the CEX. We discuss the conditions under which such procedure is successful inreplicating the trends of the first two moments of the consumption distribution. We argue thattwo factors appear to be empirically relevant: accounting for differences in the distribution offood expenditures in the two data sets, and accounting for the presence of measurement error inconsumption data in the CEX. In this paper we discuss an empirical strategy that allows researchers to impute consumptiondata from the CEX to the PSID. The strategy consists of inverting a demand for food equationestimated in the CEX. We discuss the conditions under which such procedure is successful inreplicating the trends of the first two moments of the consumption distribution. We argue thattwo factors appear to be empirically relevant: accounting for differences in the distribution offood expenditures in the two data sets, and accounting for the presence of measurement error inconsumption data in the CEX

Tying, Upgrades, and Switching Costs in Durable-Goods Markets

This paper investigates the role of product upgrades and consumer switching costs in the tying of complementary products. Previous analyses of tying have found that a monopolist of one product cannot increase its profits and reduce social welfare by tying and monopolizing a complementary product if the initial monopolized product is essential, where essential means that all uses of the complementary good require the initial monopolized product. We show that this is not true in durable-goods settings characterized by product upgrades, where we show tying is especially important when consumer switching costs are present. In addition to our results concerning tying our analysis also provides a new rationale for leasing in durable-goods markets. We also discuss various extensions including the role of the reversibility of tying as well as the antitrust implications of our analysis.

Household Decision making and Savings Impacts: Further Evidence from a Commitment Savings Product in the Philippines

Commitment devices for savings could benefit those with self-control as well as familial or spousal control issues. We examine the impact of a commitment savings product in the Philippines on household decision making power and savings attitudes. We find evidence to support both types of impacts. The product leads to more decision making power in the household for women, and likewise more purchases of female-oriented durable goods. We also find that the product leads women who appear time inconsistent in a baseline survey to self-report being a disciplined saver in the follow-up survey. For impact on savings balances, we find that the 81% increase in savings after one year did not crowd-out savings held outside of the participating bank, but that the longer-term impact (two-and-a-half years) on bank savings dissipated to only a 33% increase (which is no longer statistically significant). We discuss reasons why the effect dissipated and the implications for designing and implementing sustainable, equilibrium-shifting interventions.savings, microfinance, female empowerment, household decision making, commitment

Imputing consumption in the PSID using food demand estimates from the CEX

This paper assesses the accuracy of decomposing income risk into permanent and transitory components using income and consumption data. We develop a specific approximation to the optimal consumption growth rule and use Monte Carlo evidence to show that this approximation can provide a robust method for decomposing income risk. The availability of asset data enables the use of a more accurate approximation allowing for partial sef-insurance against permanent shocks. We show that the use of data on median asset holdings corrects much of the error in the simple approximation which assumes no self-insurance against permanent shocks.

Post-conflict justice and sustainable peace

No systematic study has examined the effect of post-conflict justice on the duration of peace on a global basis. This paper attempts to fill that void by building on a newly constructed dataset (Binningsbo, Elster, and Gates 2005), which reports the presence of various forms of post-conflict justice efforts (trials, purges, reparation to victims, and truth commissions) as well as processes associated with abstaining from post-conflict justice (amnesty and exile). It investigates the long-term effects of post-conflict justice on the duration of peace after conflict. It uses a Cox proportional hazard model to analyze the influence of the various types of post-conflict justice on the length of the peace period before the recurrence of violent conflict. Post-conflict trials as well as other types of justice do lead to a more durable peace in democratic as well as non-democratic societies, but the results are weak and are therefore difficult to generalize. Forms of non-retributive justice (that is, reparations to victims and truth commissions), however, are strongly associated with the duration of peace in democratic societies, but are not significant for non-democratic societies. Amnesty tends to be destabilizing and generally associated with shorter peace duration, but exile tends to lead to a more durable peace.Social Conflict and Violence,Post Conflict Reintegration,Peace & Peacekeeping,Corruption & Anitcorruption Law,Education and Society