Spatial competition of learning agents in agricultural procurement markets

Spatially dispersed farmers supply raw milk as the primary input to a small number of large dairy-processing firms. The spatial competition of processing firms has short- to long-term repercussions on farm and processor structure, as it determines the regional demand for raw milk and the resulting raw milk price. A number of recent analytical and empirical contributions in the literature analyse the spatial price competition of processing firms in milk markets. Agent-based models (ABMs) serve by now as computational laboratories in many social science and interdisciplinary fields and are recently also introduced as bottom-up approaches to help understand market outcomes emerging from autonomously deciding and interacting agents. Despite ABMs' strengths, the inclusion of interactive learning by intelligent agents is not sufficiently matured. Although the literature of multi-agent systems (MASs) and multi-agent economic simulation are related fields of research they have progressed along separate paths. This thesis takes us through some basic steps involved in developing a theoretical basis for designing multi-agent learning in spatial economic ABMs. Each of the three main chapters of the thesis investigates a core issue for designing interactive learning systems with the overarching aim of better understanding the emergence of pricing behaviour in real, spatial agricultural markets. An important problem in the competitive spatial economics literature is the lack of a rigorous theoretical explanation for observed collusive behavior in oligopsonistic markets. The first main chapter theoretically derives how the incorporation of foresight in agents' pricing policy in spatial markets might move the system towards cooperative Nash equilibria. It is shown that a basic level of foresight invites competing firms to cease limitless price wars. Introducing the concept of an outside option into the agents' decisions within a dynamic pricing game reveals viihow decreasing returns for increasing strategic thinking correlates with the relevance of transportation costs. In the second main chapter, we introduce a new learning algorithm for rational agents using H-PHC (hierarchical policy hill climbing) in spatial markets. While MASs algorithms are typically just applicable to small problems, we show experimentally how a community of multiple rational agents is able to overcome the coordination problem in a variety of spatial (and non-spatial) market games of rich decision spaces with modest computational effort. The theoretical explanation of emerging price equilibria in spatial markets is much disputed in the literature. The majority of papers attribute the pricing behavior of processing firms (mill price and freight absorption) merely to the spatial structure of markets. Based on a computational approach with interactive learning agents in two-dimensional space, the third main chapter suggests that associating the extent of freight absorption just with the factor space can be ambiguous. In addition, the pricing behavior of agricultural processors – namely the ability to coordinate and achieve mutually beneficial outcomes - also depends on their ability to learn from each other

Cooperative vs. Non-Cooperative Spatial Competition for Milk in the Presence of Farm Marketing Cooperatives

Although important, the spatial dimension is often neglected in studies of market power and competition in agricultural markets. This paper investigates spatial competition for raw milk between dairies under the presence of marketing cooperatives. Since observed in reality, our model is based on uniform delivered pricing and overlapping market areas. We compare spatial cooperative price matching with non-cooperative Hotelling-Smithies conduct. Utilizing a vector error correction model we show that the observed low price transmission in Germany is in line with cooperative behaviour. This seems rational since it increases processors profits. The abolition of the quota system may increase price transmission.spatial competition, uniform delivered pricing, price transmission, horizontal cooperation, VECM, Marketing,

Competition, collusion and spatial sales patterns : theory and evidence

We study competition in markets with significant transport costs and capacity constraints. We compare the cases of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers that are closer to plants of competitors. By means of a rich micro-level data set of the cement industry in Germany, we provide empirical evidence in support of this result. Controlling for other potentially confounding factors, such as the number of production plants and demand, we find that the transport distances between suppliers and customers were on average significantly lower in cartel years than in non-cartel years

Zone Pricing in Retail Oligopoly

We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. The use of zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does

The Impact of Technology and Regulation on the Geographical Scope of Banking

We review how technological advances and changes in regulation may shape the (future) geographical scope of banking. We first review how both physical distance and the presence of borders currently affect bank lending conditions (loan pricing and credit availability) and market presence (branching and servicing). Next we discuss how technology and regulation have altered this impact and analyse the current state of the European banking sector. We discuss both theoretical contributions and empirical work and highlight open questions along the way. We draw three main lessons from the current theoretical and empirical literature: (1) Bank lending to small businesses in Europe may be characterized both by (local) spatial pricing and resilient (regional and/or national) market segmentation; (2) Because of informational asymmetries in the retail market, bank mergers and acquisitions seem the optimal route of entering another market, long before cross-border servicing or direct entry are economically feasible; (3) Current technological and regulatory developments may to a large extent remain impotent in further dismantling the various residual but mutually reinforcing frictions in the retail banking markets in Europe. We conclude the paper by offering pertinent policy recommendations based on these three lessons.geographical scope, banking, lending relationships, technology, and regulation.

Essays on Firm Strategies and Market Outcomes

In the first chapter of my dissertation, Aleksandr Yankelevich and I examine the effects of price matching guarantees on duopoly markets. We find that a commitment to price-match raises prices by altering consumer search behavior in three ways. First, price-matching diminishes firms’ incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price-matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price-matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. These price increases grow with the proportion of consumers who invoke price-matching guarantees and also in the level of equilibrium asymmetry. The second chapter studies the effect of the complexity of consumers’ preferences over a product on that product’s market structure. I relate complexity of preferences to the number of dimensions of a Lancasterian characteristic space. Using a novel higher dimensional Hotelling model, I find that a fixed number of firms are likely to be better off competing over products with more complex preferences. Although firms face more intense competition in higher dimensional markets, the greater product differentiation afforded to them allows them to charge higher prices and earn higher profits. This result provides a clear theoretical foundation for the observation that goods associated with more complex preferences typically display a greater variety of products sold. Additionally, I show that the behavior of more than two firms competing in more than one dimension differs wildly from that of firms typically studied in models of spatial competition. The final chapter will examine firms\u27 motives for implementing grandfather clauses that allow certain consumers to continue to access a service at a favorable, but no longer available price. Grandfather clauses permit firms to price discriminate between early adopters and new consumers in exchange for forfeiting the right to optimally set prices for early adopters. They may be used to thwart competition following a structural change, to respond to cost shocks, or to retain customers who consume another good from a multiproduct firm. We analyze under what conditions firms might choose to offer grandfather clauses and what effects they have on welfare

Zone Pricing in Retail Oligopoly

We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel data covering the retail home improvement industry, we find that Home Depot would benefit from finer pricing but that Lowe’s would prefer coarser pricing. Zone pricing softens competition in markets where firms compete, but it shields consumers from higher prices in markets where firms might otherwise exercise market power. Overall, zone pricing produces higher consumer surplus than finer pricing discrimination does

Game theoretic pricing models in hotel revenue management: an equilibrium choice-based conjoint analysis approach

This paper explores a game-theoretically founded approach to conjoint analysis that determines equilibrium room rates under differentiated price competition in an oligopolistic hotel market. Competition between hotels is specified in terms of market share functions that can be estimated using multinomial logit models of consumer choice. The approach is based on choice-based conjoint analysis that permits the estimation of attributes weights (“part-worths”) for an additive utility formulation of the utility function. From this, room rates that equilibrate the market, conditioned on the differences in services and facilities offered by competing hotels, can be determined. The approach is illustrated by an example

International price discrimination in the European car market: An econometric model of oligopoly behavior with product differentiation

Car Industry;Oligopoly;Product Differentiation;Econometric Models;Price Discrimination

International Outsourcing and Incomplete Contracts

International outsourcing to lower cost countries such as China and India can best be understood through the enrichment of trade models to include concepts from industrial organization and contract theory that explain the vertical organization of production. The combination of trade with the choice of organizational form represents an important new area for both theoretical and empirical research. This survey paper provides a perspective on this new literature so as to gain insights into the forces driving international outsourcing. The paper focuses on relationship-specific investment, incomplete contracts, and also search and matching, as fundamental concepts that explain outsourcing decisions.