Estimating Markups under Nonlinear Pricing Competition

This paper provides a structural interpretation to the estimates of the shape and position of nonlinear tariffs. We focus on the evaluation of price-cost margins, and thus we need to identify marginal cost from an equilibrium model of nonlinear pricing competition. We estimate these price-cost margins using quarterly data from the early U.S. cellular telephone industry between 1984 and 1988. Our results indicate that the margins are increased under duopoly, due to a significant reduction in marginal costs. Moreover, we find that the price-cost margins vary over the consumption levels and that low end users are subject to higher price-cost margins than high-end users. The impact of competition further increases the margins in the low-end user segment, relative to high endusers. In that sense the benefits of competition, which are largely due to increased efficiencies, are passed on relatively more to high-end users. We also show that these findings are robust even if one includes a number of observable market demand and cost variables. ZUSAMMENFASSUNG - (Schätzung von Preisaufschlägen im nicht-linearen Preissetzungswettbewerb) Dieses Papier bietet eine strukturelle Interpretation der Schätzungen der Form und Position nichtlinearer Tarife. Dabei konzentrieren wir uns auf die Bewertung von Preisaufschlägen und müssen daher zunächst die Grenzkosten in einem Gleichgewichtsmodell nicht-linearen Preiswettbewerbs identifizieren. Wir schätzen diese Preisaufschläge, indem wir Quartalsdaten der jungen Mobilfunkindustrie der U.S.A. zwischen 1984 und 1988 verwenden. Die Ergebnisse deuten darauf hin, dass die Aufschläge in einem Duopol aufgrund signifikanter Grenzkostenreduktion größer sind. Außerdem lässt sich feststellen, dass die Preisaufschläge über die Konsumniveaus variieren und dass Nutzer im Niedrigsegment ('low-end') höhere Preisaufschläge zu tragen haben als 'highend'- Nutzer. Der Einfluß des Wettbewerbs vergrößert noch die Preisaufschläge im 'low-end'-Bereich im Vergleich zum 'high-end'. In diesem Sinne profitieren die 'high-end'-Nutzer mehr vom Wettbewerb, der sich vor allem in gesteigerten Effizienzen positiv niederschlägt. Diese Ergebnisse sind robust, wie gezeigt werden kann, sogar wenn eine Reihe beobachtbarer Marktnachfrage- und Kostenvariablen hinzugefügt wird.Estimation of Equilibrium Oligopoly Models, Competitive Nonlinear Pricing, Common Agency

Innovation Complementarity and Scale of Production

complementarity; supermodularity; non-observed heterogeneity; product innovation; process innovation

The Doubtful Profitability of Foggy Pricing

This paper studies whether competition may induce firms abandoning deceptive pricing strategies aimed to profit from mistaken choices of consumers. The empirical analysis focuses on the pricing practices of early U.S. cellular firms, both under monopoly and duopoly. Foggy tariff options are those that are dominated by another option or a combination of other tariff options offered by the firm. I also define a measure of fogginess of non-dominated tariffs based on the range of airtime usage for which they are the least expensive option among those available. Results indicate that firms offer more dominated tariff options in a competitive market than under monopoly. While markets are profitable, perhaps because they grow or because firms collude, the use of foggy tactics is not frequent. However, if the market is more mature, or if firms do not cooperate, thus reducing the return to their investment, then they commonly turn to foggy pricing

Estimating markups under nonlinear pricing competition

"Dieses Papier bietet eine strukturelle Interpretation der Schätzungen der Form und Position nichtlinearer Tarife. Dabei konzentrieren wir uns auf die Bewertung von Preisaufschlägen und müssen daher zunächst die Grenzkosten in einem Gleichgewichtsmodell nicht-linearen Preiswettbewerbs identifizieren. Wir schätzen diese Preisaufschläge, indem wir Quartalsdaten der jungen Mobilfunkindustrie der U.S.A. zwischen 1984 und 1988 verwenden. Die Ergebnisse deuten darauf hin, dass die Aufschläge in einem Duopol aufgrund signifikanter Grenzkostenreduktion größer sind. Außerdem lässt sich feststellen, dass die Preisaufschläge über die Konsumniveaus variieren und dass Nutzer im Niedrigsegment ('low-end') höhere Preisaufschläge zu tragen haben als 'highend'-Nutzer. Der Einfluß des Wettbewerbs vergrößert noch die Preisaufschläge im 'low-end'-Bereich im Vergleich zum 'high-end'. In diesem Sinne profitieren die 'high-end'-Nutzer mehr vom Wettbewerb, der sich vor allem in gesteigerten Effizienzen positiv niederschlägt. Diese Ergebnisse sind robust, wie gezeigt werden kann, sogar wenn eine Reihe beobachtbarer Marktnachfrage- und Kostenvariablen hinzugefügt wird." (Autorenreferat)"This paper provides a structural interpretation to the estimates of the shape and position of nonlinear tariffs. We focus on the evaluation of price-cost margins, and thus we need to identify marginal cost from an equilibrium model of nonlinear pricing competition. We estimate these price-cost margins using quarterly data from the early U.S. cellular telephone industry between 1984 and 1988. Our results indicate that the margins are increased under duopoly, due to a significant reduction in marginal costs. Moreover, we find that the price-cost margins vary over the consumption levels and that low end users are subject to higher price-cost margins than high-end users. The impact of competition further increases the margins in the low-end user segment, relative to high endusers. In that sense the benefits of competition, which are largely due to increased efficiencies, are passed on relatively more to high-end users. We also show that these findings are robust even if one includes a number of observable market demand and cost variables." (author's abstract

Análisis de la integrabilidad de un sistema completo de demanda para la economía española

In this paper we implement the methodology of Jorgenson and Lau for testing Consumer' s Theory. The importance of this methodology is based on the fact you can fit demand functions without requiring integrabitily and then test for it. We test the conditions implied by integrability in a complete demand system (direct and indirect systems). That means testing for homogeneity, summability, symmetry, non-negativity and monotonicity of systems of demand functions. We use empírical data from Spanish domestic consumption in durables, non-durables and energy.En este trabajo utilizamos la metodología de Jorgenson y Lau para contrastar la teoría de la demanda del consumidor. La importancia de esta metodología está basada en el hecho de que permite ajustar funciones de demanda sin que se requiera la integrabilidad de las mismas, contrastándose esta condición a continuación. Contrastamos por tanto las condiciones que implica la integrabilidad en un sistema completo de demanda (sistema directo e indirecto), lo que implica contrastar la homogeneidad, aditividad, simetría, no-negatividad y monotonicidad del sistema de funciones de demanda. Utilizamos datos sobre el consumo interior de España en bienes duraderos, no duraderos y energía

Market Power and the Laffer Curve

We study commodity taxation and characterize the Laffer curve, a trade-off between tax rates and revenue, in noncompetitive markets. Pricing in these markets leads to incomplete tax pass-through and agents re-optimize their purchase and pricing decisions in response to any tax change. We use detailed data from Pennsylvania, a state that monopolizes retail sales of alcoholic beverages, to estimate a model of demand for horizontally differentiated products that ties consumers' demographic characteristics to heterogeneous preferences for spirits. We find that under the state's current tax policy, spirits are overpriced. Distillers respond to decreases in the tax rate by increasing wholesale prices, which limits the state's revenue gain to only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. The strategic response of noncompetitive firms to changes in taxation therefore flattens the Laffer curve significantly

Complexity, Efficiency, and Fairness of Multi-Product Monopoly Pricing

The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits and is mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the implications of this policy. We find that failure to account for the correlation between demographics and consumption patterns leads to lower prices than those charged by a profit-maximizing, multi-product monopolist. Using product-specific markups leads to higher prices on average, less quantity consumed, an 11% increase in total profits, and greater welfare. The current one-size-fits-all pricing rule ignores variations in demand elasticities resulting in the implicit taxation of high-income and educated households by raising the prices of spirits they prefer (vodka and whiskey) while lowering the price of products favored by low-income and minority households (gin and rum)

APLICACION DE LOS MODELOS DE ELECCION DISCRETA AL ANALISIS DE LA ADOPCION DE INNOVACIONES ECONOMICAS. EL CASO DEL SECTOR AZULEJERO

This paper attempts to justify the use of discrete choicemodels to approach the study of adoption of new technology. Ittries to adapt an essentially dynamic theoretical framework suchas the diffusion of innovations to carry out a static analysis.Finally, it suggests the use of ordered models to study theadoption of innovations when severa1 capital vintage areembodying technological advances.- Such analysis technique isapplied by the Valencian tile sector firms to the study of theadoption of single firing tunnel kilns technology. En el presente trabajo se intenta justificar la utilizaciónde los modelos de elección discreta para abordar el estudio dela adopción de nueva tecnología. Se trata de adaptar un marcoteórico esencialmente dinámico como es el de la difusión deinnovaciones para realizar un análisis estático. Por último sepropone la utilización de los modelos ordenados para estudiarla adopción de innovaciones cuando existen varias generacionesde capital que incorporan los avances tecnológicos en distintogrado. Dicha técnica de análisis es aplicada al estudio de laadaptación de la tecnologla de monococción por la empresas delsector azulejero Valenciano.

Learning by Doing and Protection of an Infant-Industry

This paper addresses an optimal tariff design to protect an infant-industry in the presence of learning effects. Firms decide how much to produce, taking into account learning effects induced by their current production, while the government decides on the level of tariff protection. In order to include different levels of bargaining power for each group of agents, each component of the welfare function is weighted with these weights taken as given. We solve the symmetric case without spillovers and fixed cost reduction due to accumluated output. Assuming that domestic and foreign production are imperfect substitutes for each other but perfect substitutes within each group, we use a complete linear demand system to represent domestic consumers' preferences. The analytic Markov Perfect Equilibria of this game is derived by solving a linear-quadratic differential game. The optimal tariff policy is characterized and compared to Spain's tariff policy on Iron and Steel for 1913.

Screening Consumers through Alternative Pricing Mechanisms

This paper addresses the optimal design of optional nonlinear tariffs. Two particular solutions commonly used in telecommunications and other industries are fully characterized. These optimal outlay schedules illustrate how the tariff design is altered when there exists a time lag between tariff choice and consumption. In this model consumers' uncertainty is resolved in the interim, between the tariff choice and the usage decision, through changes in their types. The paper studies whether the monopolist may profit from screening consumers according to different information sets, and it shows that expected profits are higher under an ex-post tariff if the variance of the ex-ante type distribution is large enough. The paper also shows that no results regarding social efficiency may be obtained in general. Welfare comparison of optional tariffs will be very sensitive to type distributions, how types enter demand specifications, and the relative variance of the type components.