22,835 research outputs found
Price Competition, Fluctuations, and Welfare Guarantees
In various markets where sellers compete in price, price oscillations are
observed rather than convergence to equilibrium. Such fluctuations have been
empirically observed in the retail market for gasoline, in airline pricing and
in the online sale of consumer goods. Motivated by this, we study a model of
price competition in which an equilibrium rarely exists. We seek to analyze the
welfare, despite the nonexistence of an equilibrium, and present welfare
guarantees as a function of the market power of the sellers.
We first study best response dynamics in markets with sellers that provide a
homogeneous good, and show that except for a modest number of initial rounds,
the welfare is guaranteed to be high. We consider two variations: in the first
the sellers have full information about the valuation of the buyer. Here we
show that if there are items available across all sellers and is
the maximum number of items controlled by any given seller, the ratio of the
optimal welfare to the achieved welfare will be at most
. As the market power of the largest seller
diminishes, the welfare becomes closer to optimal. In the second variation we
consider an extended model where sellers have uncertainty about the buyer's
valuation. Here we similarly show that the welfare improves as the market power
of the largest seller decreases, yet with a worse ratio of
. The exponential gap in welfare between the two
variations quantifies the value of accurately learning the buyer valuation.
Finally, we show that extending our results to heterogeneous goods in general
is not possible. Even for the simple class of -additive valuations, there
exists a setting where the welfare approximates the optimal welfare within any
non-zero factor only for fraction of the time, where is the number
of sellers
Which foreign investors worry about foreign exchange risk in South Asia and why?
The authors show that the potential benefit to a host country of forward markets or of foreign exchange guarantees depend on the investor's country of origin and on specific characteristics of investment. They show this in terms of the effects on foreign-exchange risks and on the amount of foreign direct investment taking place. Their main lessons for foreign investors: (a) the benefits of hedging exchange risks through forward markets vary substantially, depending on the investor, the type of investment, and, for foreign direct investment (FDI), the direction of the market supplied; (b) for short lived investment or FDI targeted to the host country market, the potential for gain from forward contracts is substantial because in the short run, nominal exchange rate fluctuations tend to be larger than real exchange rate fluctuations; (c) for long-lived investments or export oriented FDI, the gains from forward contracts will be much smaller. Firms investing in long lived assets or in activities targeted to exports net natural insurance from the correlation between the nominal exchange rate and the firm's earnings in host-country currency; and (d) the evidence on exchange rate and price fluctuations between 1975 and 1991 suggests that the demand for coverage is likely to be stronger in South Asia than in Latin America. In East Asia, the evidence is mixed. Their main lessons for host country governments: (a) in the short run, if there are no private forward markets, the optimal policy for a risk-neutral host country is to provide the firm with forward contracts at the expected spot exchange rate. This government insurance has the same effects as allowing trading in forward markets. But these contracts can have fiscal consequences, as they did in Latin America; (b) forward markets do not discriminate against host country firms. Those engaged in international trade can also benefit from the presence of forward markets; and (c) in the medium run, as exchange controls are being liberalized, forward markets may be slow to develop because of participants'uncertainty about their ability to get foreign currency to cover forward commitments. In this transitional period, contracts offered by the government are likely to be the most efficient means of reassuring foreign investors. These contracts should also be make available to host-country firms during the transitional period, in order not to discriminate against domestic investors.Economic Theory&Research,Environmental Economics&Policies,Financial Intermediation,Banks&Banking Reform,Economic Stabilization
Notes on Cloud computing principles
This letter provides a review of fundamental distributed systems and economic
Cloud computing principles. These principles are frequently deployed in their
respective fields, but their inter-dependencies are often neglected. Given that
Cloud Computing first and foremost is a new business model, a new model to sell
computational resources, the understanding of these concepts is facilitated by
treating them in unison. Here, we review some of the most important concepts
and how they relate to each other
Investment Incentives and Electricity Spot Market Design
In liberalized electricity markets strategic firms compete in an environment characterized by fluctuating demand and non-storability of electricity. While spot market design under those conditions by now is well understood, a rigorous analysis of investment incentives is still missing. Existing models, as the peak-load-pricing approach,
analyze welfare optimal investment and find that optimal investment is higher with more competitive spot markets.
In this article we want to extend the analysis to investment decisions of strategic firms that anticipate competition on many consecutive spot markets with
fluctuating (and possibly uncertain) demand. We study how the degree of spot market competition affects investment incentives and welfare and provide an application of the model to electricity market data. Our results show that more competitive spot market prices strictly decrease investment incentives of strategic firms. The reduction of investment incentives can be so intense to even offset the beneficial impact of more competitive spot market design. Those results obtain with and without free entry. Our analysis thus demonstrates that investment incentives necessarily have to be taken into account for a meaningful assessment of proper electricity spot market design
WTO Agreements and Indian Agriculture: Retrospection and Prospects
By the end of 1999 World Trade Organization (WTO) will complete its five years of existence. At that time, re-negotiation on Agreement on Agriculture (AOA) will also begin. It is time to take a retrospective look at what were the expected gains for India, how was the AOA implemented, and ponder over India’s prospects in the up-coming re-negotiations. While the predictions of various macro-models about the gains to Indian agriculture and farmer were not unequivocal, their implicit assumption of perfectly competitive export markets is also questionable. Under imperfectly competitive export market structure, improvement in the terms-of-trade for Indian agriculture may be very limited. Whatever little improvement in terms-of-trade may occur, it may not have a favourable effect as agricultural supply response to changes in terms-of-trade is quite ambiguous. Moreover, the ex-post gains accruing to Indian agriculture so far seem to be very little since developed countries have used various escape routes in the WTO agreements to minimise their reform commitments. India will have to concentrate on non-price factors to improve welfare in the agricultural sector. The prospects of getting additional gains in the up-coming re-negotiations hinge on how India can take maximum advantage of the existing clauses of the AOA, and, to what extent it is successful in amending some of the clauses to its advantage.
Alternative instruments for the CAP?
With parallel negotiations taking place on enlargement of the EU and a new WTO agreement, EU's Common Agricultural Policy is facing further reforms. This report addresses the issue of whether any alternatives can be found for the instruments of this policy, and looks at decoupled payments, a net income stabilisation fund, risk insurance programmes and export credits. It is concluded that the policy instruments in question are directed at widely varying objectives. They could prove to be a useful supplement to the existing instruments. In general, however, they do not (yet) present satisfactory alternatives for the current EU agricultural polic
Price Competition in Online Combinatorial Markets
We consider a single buyer with a combinatorial preference that would like to
purchase related products and services from different vendors, where each
vendor supplies exactly one product. We study the general case where subsets of
products can be substitutes as well as complementary and analyze the game that
is induced on the vendors, where a vendor's strategy is the price that he asks
for his product. This model generalizes both Bertrand competition (where
vendors are perfect substitutes) and Nash bargaining (where they are perfect
complements), and captures a wide variety of scenarios that can appear in
complex crowd sourcing or in automatic pricing of related products.
We study the equilibria of such games and show that a pure efficient
equilibrium always exists. In the case of submodular buyer preferences we fully
characterize the set of pure Nash equilibria, essentially showing uniqueness.
For the even more restricted "substitutes" buyer preferences we also prove
uniqueness over {\em mixed} equilibria. Finally we begin the exploration of
natural generalizations of our setting such as when services have costs, when
there are multiple buyers or uncertainty about the the buyer's valuation, and
when a single vendor supplies multiple products.Comment: accept to WWW'14 (23rd International World Wide Web Conference
Recommended from our members
Welfare Impacts of Electricity Generation Sector Reform in the Philippines
This paper reports an empirical investigation into the welfare impacts of an introduction of private sector participation into the Philippines electricity generation sector, by liberalizing the market for independent power producers (IPPs) during the power crisis of 1990-1993. This study uses a social cost and benefit analysis. The main benefits came from IPPs, who contributed to resolving the crisis, and promoted economic and social development. Consumers and investors are net gainers, while the Government lost and there was an air pollution cost. The paper concludes that the reform with private sector participation increased social welfare
- …