A theoretical model of collusion and regulation in an electricity spot market

This paper presents a theoretical model of collusion and regulation in a wholesale electricity spot market. Given a demand for electricity, competing generators report their marginal costs. Then, only generators with the lowest marginal costs are selected to sell at a price equal to the marginal costs of the last generator selected to sell. The results show that under a fixed price level it is a weakly dominant strategy to truthfully report the marginal cost. Variable (or endogenous) prices create the possibility of profitable collusion among generators. With uncertainty in the marginal costs and risk neutrality, the results show that a necessary condition for collusion to be sustainable is that the marginal cost reported by the pivot (marginal generator) should be higher than the average of the true marginal costs of all the generators. The existence of collusion fines and audit probabilities were found to be effective in deterring collusion. It is also shown that more efficient generators have less incentive to collude.Electricity; Regulation; Collusion.

Frequent flyer programs premium and the role of airport dominance

This paper estimates a Frequent Flyer Programs (FFP) price premium -- higher fares associated with a larger proportion of travelers using FFP. The results show that FFP affect the entire price distribution, but the effect is larger on lower end fares. In addition, airport dominance increases the premium on less expensive fares but has no effect on the premium associated with the right tail of the price distribution.Frequent Flyer Programs; Pricing; Airlines; Panel Data

Systematic peak-load pricing, congestion premia and demand diverting: Empirical evidence

This paper finds empirical support to systematic peak-load pricing in airlines---higher fares in ex-ante known congested periods. It estimates a congestion premia and supports the main empirical prediction in Gale and Holmes (1993)---less discount seats on peak fights.Airlines; Congestion Premia; Peak-load pricing

Testing for Stochastic and Beta-convergence in Latin American Countries

This paper uses time-series data from nineteen Latin American countries and the U.S. to test for income convergence using two existing definitions of convergence and a new testable definition of β-convergence. Only Dominican Republic and Paraguay were found to pair-wise converge according to the Bernard and Durlauf (1995) definition. More evidence of stochastic convergence exists when allowing for structural breaks using the two-break minimum LM unit root of Lee and Strazicich (2003). The results show greater evidence of convergence within Central America than within South America. Dominican Republic is the only country that complies with the neoclassical conditions of income convergence.Economic growth; Convergence; Latin America; Time-series

Estimating dynamic demand for airlines

This paper uses an original panel dataset with posted prices and sales to estimate a dynamic demand. We find that consumers become more price sensitive as time to departure nears which is consistent with having lower valuations. This result provides empirical support to a key theoretical implication in Deneckere and Peck (2012)—high-valuation consumers purchase earlier. We also find that the number of active consumers increases closer to departure. Highlights • We use an original dataset with posted prices and sales to estimate a dynamic demand. • The estimates are consistent with agents forming expectations. • We find that high-valuation consumers purchase earlier. • The results show that the number of active consumers increases closer to departure

Expectations and the Dynamic Feedback between Foreign Direct Investment and Economic Growth

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth – larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics

Financial Contagion During Stock Market Bubbles

We investigate the role of bubbles on financial contagion using a set of developed economies. First, using the recursive flexible window right-tailed ADF-based procedure, we date stamp bubble periods in stock index series. Second, we capture contagion with a DCC multivariate GARCH framework. In a third step, we construct a panel by pooling across the time-series dynamic conditional correlations and bubbles to estimate various dynamic panel specifications that consider the endogenous nature of bubbles. We find statistically significant decreases in the dynamic correlations during periods of bubbles, which shows that the financial contagion between pair of countries diminishes when any of the two countries in the pair is going through a bubble period. This implies that during bubble periods investors are looking for an investment opportunity within their economy and rely less on international diversification. However, decrease in contagion between two economies could provide ample diversification opportunities for portfolio managers

Reducing asymmetric information in venture capital backed IPOs

Purpose The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group. Design/methodology/approach The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to estimate the mixture model via maximum likelihood. Findings The authors find strong evidence that companies can be separated into two groups based on how IPO returns are determined. For companies in the first group the results are similar to previous studies. For companies in the second group the authors find that profitability is mainly affected by the reputation of the seed VC and capital expenditures. Tangible assets and age help explain group affiliation. The authors also motivate the findings for a continuum of heterogeneous IPO groups. Practical implications The proposed mixture approach helps decrease asymmetric information for investors, regulators, and companies. Originality/value The mixture methods help decrease asymmetric information between investors and firms improving the probability of making profitable investments. Separating between groups of IPOs is crucial because different determinants of an IPO operating performance can potentially have opposite effects for different groups

Date stamping bubbles in Real Estate Investment Trusts

We test for the existence of single and multiple bubble periods in four Real Estate Investment Trust (REIT) indices using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF. These methods allow us to estimate the beginning and the end of bubble periods. Our results provide statistically significant evidence of speculative bubbles in the REIT index and its three components: Equity, Mortgage and Hybrid REITs. These results may be valuable for real estate financial managers and for investors in REITs

Identifying price bubble periods in the energy sector

In this paper we test for the existence of single and multiple episodes of explosive behavior in three energy sector indices (crude oil, heating oil, and natural gas) and five energy sector spot prices (West Texas Intermediate (WTI), Brent, heating oil, natural gas, and jet fuel). The results from the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF tests provide strong statistical evidence of explosive behavior in all of our energy series. A simple theoretical framework of commodity pricing allows us to understand the assumptions to interpret explosive behavior as bubbles. By constructing implied convenience yields using futures prices we test the key assumption and we are able to identify the beginning and the end of bubble periods for the WTI, Brent, heating oil, and natural gas spot prices