8,780 research outputs found
Monopolistic competition with a mail order business
Monopoly;Mail Order Selling
Online Cashback Pricing: A New Affiliate Strategy for E-Business
This paper examines the impact of “cashback” mechanism on online merchants’ affiliate and pricing strategies. Through reimbursing a portion of the transactional amount to consumers in a form of cashback, merchants are able to practice second-degree price discrimination. We develop an analytical framework which explicitly considers the cost associated with the underlying promotional vehicle. We first identify the conditions under which affiliate strategy is profitable. Surprisingly, the promotional “low” price could be actually “high”, relative to the uniform price when cashback is absent. We also propose channel coordination as a remedy to mitigate market inefficiency caused by double marginalization. Finally, we extend our model to a duopoly setting and find that a merchant can benefit from its rival’s move into the cashback market. Interestingly, under certain conditions both merchants have no incentive to move alone but prefer its rival to do so
Global Cement Industry: Competitive and Institutional Dimensions
The cement industry is a capital intensive, energy consuming, and vital industry for sustaining infrastructure of nations. The international cement market –while constituting a small share of world industry output—has been growing at an increasing rate relative to local production in recent years. Attempts to protect the environment in developed countries –especially Europe—have caused cement production plants to shift to countries with less stringent environmental regulations. Along with continually rising real prices, this has created a concerning pattern on economic efficiency and environmental compliance. This paper attempts to critically analyze the forces affecting pricing and production of cement from two perspectives. Porter’s five forces serve as our tool to analyze the competitive forces that move the industry from a market economy standpoint. On the other hand, the institutional economics framework serves to explain how governments and policymakers influence the structure and production distribution in the global market. Our findings suggest that the cement industry does not follow expected patterns of a market economy model. Additionally, it does not fully behave along the institutional economics paradigm. Hence, neither perspective explains the pricing or nature of the market on its own. Combining market forces within an institutional setting provides a more clear understanding of price dynamics and industry performance. We find that local regulation alone is insufficient to ensure market efficiency due to weak institutional governance in developing countries aligned with private business interests of global cement firms. Moreover, the global impact of local environmental non-compliance generates economic spillover effects that cannot be corrected by market forces alone. Due to asymmetries in governance and structure, this paper recommends the establishment of an independent international regulatory body for the cement industry that serves to provide sustainable industry development guidelines within a global context.Keywords: cement – global industry– institutional economics – Porter competition – market niche
Direction dependent prices in public transport: A good idea? The back haul pricing problem for a monopolistic public transport firm
Markets for transport are often characterised by unequal demand in both directions: every morning during peak hours the trains are crowded while moving towards the direction of large cities, whereas they may be almost empty in the other direction. In this paper we discuss the implications of these imbalances for price setting of transport firms. From the viewpoint of economic theory, two regimes can be distinguished: one where - owing to price discrimination - the flows are equal, and one where unequal flows are the result. Special attention is paid to the case where the transport firm does not apply price discrimination, as is the case with most railway firms in Europe. We find that in the case of substantial joint costs, the introduction of price discrimination not only leads to an increase of profits, but also to positive effects on consumer surplus. This result differs from the standard result in the literature on industrial economics. The standard result purports that with linear demand functions price discrimination has a negative impact on the welfare of the average consumer and that this negative impact dominates the positive effect on profits of the producer. © 2002 Kluwer Academic Publishers
Estimation of Cost Pass Through to Michigan Consumers in the ADM Price Fixing Case
This report analyzes the economic impact of price fixing in the wet corn milling industry on consumers in the State of Michigan. Two of the companies who produce citric acid have pleaded guilty to fixing its price. In this report we assume that price fixing also occurred among HFCS producers. Given the structure of the corn wet milling industry and the direct purchaser industries, the overcharge is essentially uniform across buyers and selling arrangements. We develop an actual economic model of price transmission based upon the three facts: 1) The overcharge as a percent of the processed product value at wholesale and at retail is small, 2) Fixed proportion technology, and 3) consumers have imperfect information about prices so a small price change has no effect on their purchase behavior. These facts establish that 100 percent or more of the common overcharge will be passed through to consumers. In a more general economic model, we analyze pass through when consumer demand is not perfectly inelastic. For different strategies (profit maximization, sales maximization subject to a target level of profit, and loss leader strategies) and for different market structures (competitive, monopoly, oligopoly), the rate of pass through is 100 percent or greater given certain documented characteristics of the industries in this case. Given the prior points consumer damages are the common overcharges for each commodity times the amount of the commodity sold during the damage period. This is a lower bound estimate of consumer damages because pass through may well be greater than 100%.price fixing, overcharge, cost pass through, fixed proportion production technology, flexible demand specifications, competitive structure, Agribusiness, Crop Production/Industries, Demand and Price Analysis,
Market-based Options for Security of Energy Supply
Energy market liberalization and international economic interdependence have affected governments’ ability to react to security of supply challenges. On the other side, whereas in the past security of supply was largely seen as a national responsibility, the frame of reference has increasingly become the EU in which liberation increases security of supply mainly by increasing the number of markets participants and improving the flexibility of energy systems. In this logic, security of supply becomes a risk management strategy with a strong inclination towards cost effectiveness, involving both the supply and the demand side. Security of supply has two major components that interrelate: cost and risk. This paper focus the attention on costs in the attempt to develop a market compatible approach geared towards security of supply.Energy supply, Market-based options
Marginal Cost Versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water
The model simulates on a 20-year horizon, a first phase of increase in the water resource availability taking into account the supply policies by the Senegalese government and a second phase with hydrologic deficits due to demand evolution (demographic growth). The results show that marginal cost water pricing (with a subsidy ensuring the survival of the water production sector) makes it possible in the long term to absorb the shock of the resource shortage, GDP, investment and welfare increase. Unemployment drops and the sectors of rain rice, market gardening and drinking water distribution grow. In contrast, the current policy of average cost pricing of water leads the long-term economy in a recession with an agricultural production decrease, a strong degradation of welfare and a rise of unemployment. This result questions the basic tariff (average cost) on which block water pricing is based in Senegal.Computable General Equilibrium Model, Dynamic, Imperfect Competition, Water, Pricing, Sub Saharan Africa
Dynamic Price Competition with Price Adjustment Costs and Product Differentiation
We study a discrete time dynamic game of price competition with spatially differentiated products and price adjustment costs. We characterise the Markov perfect and the open-loop equilibrium of our game. We find that in the steady state Markov perfect equilibrium, given the presence of adjustment costs, equilibrium prices are always higher than prices at the repeated static Nash solution, even though, adjustment costs are not paid in steady state. This is due to intertemporal strategic complementarity in the strategies of the firms and from the fact that the cost of adjusting prices adds credibility to high price equilibrium strategies. On the other hand, the stationary open-loop equilibrium coincides always with the static solution. Furthermore, in contrast to continuous time games, we show that the stationary Markov perfect equilibrium converges to the static Nash equilibrium when adjustment costs tend to zero. Moreover, we obtain the same convergence result when adjustment costs tend to infinity.Price adjustment costs, Difference game, Markov perfect equilibrium, Open-loop equilibrium
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