Price Elasticity Of Demand Research Articles

The price and income elasticities of natural gas demand in Azerbaijan: Is there room to export more?

Natural gas is frequently introduced as a “transitional fuel”. Because burning natural gas emits less carbon dioxide emissions than burning either oil or coal. Additionally, the intermittent nature of low-carbon electricity generation creates imperative for using natural gas for power generation. The role of natural gas is currently under scrutiny as climate change transforms into a climate crisis. Meanwhile, share of natural gas in the primary energy consumption of Azerbaijan is 69%, while 94% of the country’s electricity is currently being generated in natural gas-fired power plants. In this manner, this paper estimates income and price elasticities of natural gas demand for the Azerbaijan case. In this study, various sets of estimation techniques are utilized. By modeling natural gas demand with different estimation methods, including Autoregressive Distributed Lagged Structural Time Series Modeling, Dynamic Ordinary Least Squares Method, Fully Modified Ordinary Least Squares, Canonical Cointegrating Regression, and General to Specific under Autometrics multi-path search machine learning algorithm, we try to find if there is room for the country to export more. All these utilized estimation methods confirmed the long-run income elasticity to be around 0.8, while the long-run price elasticity is around −0.1. Both estimations provide insights in terms of energy security and electricity security for policymakers during the implementation process of climate, energy, and environmental policy. Findings of this study classify natural as a necessity and normal good for the Azerbaijan case. The main policy implication of this study is that policymakers must enable and facilitate the availability of close renewable substitutes for residential and commercial customers. Estimated elasticities suggest that with rising national income, demand for natural gas will keep increasing, and efficient consumption will not be attainable with increasing prices. In the pursuit of export potential, findings suggest that it is more relevant to free up natural gas allocated from power generation by substituting it with renewable energy sources.

Price elasticity of electricity demand in China– A new instrument variable based on marketization policy

Estimating the price elasticity of the demand for electricity is important in research on the economics of electricity. However, the conventional approach of using average electricity prices as explanatory variables introduces endogenous challenges, such as measurement errors and reverse causality. In this study, we provide a novel analysis of China's coal and electricity marketization process, investigating the impact of coal marketization on electricity prices. To overcome the endogeneity issue, we employ an instrumental variable (IV) method that leverages exogenous variations in average electricity prices induced by the coal marketization policy. The results indicate that the ordinary least squares (OLS) method underestimates the price elasticity of the demand for electricity by ignoring the fluctuations in coal prices. These results carry significant policy implications for countries considering energy marketization reforms as a solution to their energy challenges. Moreover, our research offers an innovative approach to address endogeneity, contributing to the methodological advancement of the field.

Does the S&P index effect differ between large and small company stocks?

PurposeThe purpose of this study is to compare market reactions to the change in the demand by index funds between large and small company stocks by examining the transition of the S&P 500, S&P 400 MidCap and S&P 600 SmallCap indexes from market capitalization to free-float weighting. This unique information-free event allows not only avoiding confounding information signaling and investor awareness effects but also comparing the effect of the decrease in demand on stocks of different sizes.Design/methodology/approachThis study uses the event study methodology to calculate abnormal returns and trading volume around the full-float adjustment day. It also tests for significant changes in institutional ownership and liquidity. Multivariate regressions are used to examine the relation of liquidity changes and price elasticity of demand to the cumulative abnormal returns around the full-float adjustment day.FindingsThis study finds significant decreases in stock price accompanied with significant increases in trading volume on the full-float adjustment day, and significant gains in quasi-indexer institutional ownership and liquidity. The main finding is that cumulative abnormal returns around the event period are related to changes in the number of quasi-indexer and transient institutional shareholders, not to changes in liquidity or price elasticity of demand.Originality/valueThis study provides the first comprehensive comparison analysis of stock market reactions to the decline in demand between large and small company stocks. As an important implication for future studies of the index effect, changes in institutional ownership should be considered in the analysis.

Labor Demand Responses to Changing Gas Prices

Abstract In course of the current energy crisis, the consequences of increasing gas prices are heavily discussed. To date, however, there is no evidence of the impact of gas prices on the labor market. Using administrative employment data from 2012 to 2020, we find for manufacturing establishments a gas price elasticity of labor demand of −0.02, likely reflecting a scale effect. We also show that a rise in the gas price leads to an increase in establishment closure. A negative impact of the gas price on wages of 2 percent is consistent with rent-sharing.

Price elasticity of demand and its impact on hotel revenue performance during the COVID-19 pandemic

This study investigates price elasticity of demand and its pricing effect on revenue performance of hotels during the COVID-19 pandemic. Using annual operating performance data on over 2,500 hotels from 2018 to 2021, this study provides empirical evidence of a relatively inelastic demand for the lodging sector. Price, income, cross-price, and lagged demand are positive and inelastic in their relationships with demand. Price has a significant and negative effect on lodging demand while a hotel’s competitive position has a significant influence on RevPAR performance with both negatively affected by COVID-19. More important, the results show a significantly greater positive impact of pricing on RevPAR penetration for hotels that raised rates relative to hotels that dropped rates. The findings suggest that it may be best for hotels to maintain or raise room rates to maximize revenue performance in the midst of an external shock.

Can auctions increase competition in the pension funds market? The Chilean experience

This paper analyses the auction policy over enrollees’ monopoly rights introduced in the Chilean pension system. This policy was designed to promote competition in the pension fund market driven by private firms, after 30 years of operation. Since the Chilean pension fund system has inspired dozens of countries in the last forty years, the analysis of the design and performance of its relatively new auction mechanism is of worldwide interest. We present a theoretical and empirical model. Our theoretical model illustrates firms’ incentives to participate in the auction process. Our empirical analysis focuses on the effect of auctions on outcomes, such as fees, mark-ups, demand price elasticity, returns, and risk premiums. Despite the evidence shown for the positive benefits of the auction implementation, the current mechanism design is not considering that the biggest issue is the low individuals’ price response levels. Importantly, the current auction design only incentivizes new entrants to participate. Thus, the design generates low competition in the auction processes. Proper design should incentivize all firms to participate. Besides, we find that consumers’ price elasticity increased after the implementation of auctions, although demand is still generally inelastic. Interestingly, non-winning auction firms did not react in fees but may have reacted in other characteristics, such as returns and risk premiums.

Why has the OECD long-run GDP elasticity of economy-wide electricity demand declined? Because the electrification of energy services has saturated

Understanding the income/GDP and price elasticities of energy/electricity demand is important for forecasting demand and evaluation of the potential impact of policies. Recent work on the GDP elasticity of economy-wide electricity demand has suggested that this elasticity is both substantially smaller than that of economy-wide energy demand and possibly has declined substantially over time. We assemble the largest OECD country panel to date to analyze the GDP and price elasticities of economy-wide electricity demand. We use an approach that addresses several key aspects of long-panel, macro modeling—cross-sectional dependence, country heterogeneity, and dynamic adjustments—and approximates temporal heterogeneity. We find that: (1) the GDP elasticity of economy-wide electricity demand has declined over time; and (2) that elasticity is now possibly as low as 0.2. In addition, we produce evidence that the reason for that decline is the saturation of the electrification of energy services in OECD countries. Hence, were more energy services to become electrified (e.g., transport), we would expect the GDP elasticity of economy-wide electricity demand to increase (e.g., toward 0.5—the GDP elasticity for gasoline demand). This saturation finding is important for forecasts of electricity consumption as well as for climate change mitigation policy; the finding is important because suggests that substantially increasing the electrification of energy services—one of two prongs in a carbon mitigation strategy—will/may lead to an increase in the GDP elasticity for electricity as well as to the potentially rapid increase in electricity consumption.

An empirical analysis of e-cigarette addiction

ABSTRACT This paper examines the role of addiction in influencing the demand for e-cigarettes using the Nielsen Retail Scanner Data and the Nielsen Consumer Panel Data between 2012 and 2017. With a comparison of a myopic addiction model, a forward-looking model, and a rational addiction model, this paper tests whether the consumption of e-cigarettes is addictive and rational. Results from both the macro data and the microdata support the rational addictiveness of e-cigarettes. Applying an OLS method and an instrumental variable method in causal inference, results show that the long-run price elasticity estimates are larger than the estimates of the short-run price elasticity of demand for e-cigarettes. Estimates of both long-run and short-run elasticities are greater than one, −1.50 and −1.05, suggesting e-cigarette demand is elastic in both the long run and short run.

Price and income elasticities of industrial electricity demand in Brazil: estimates and implications of COVID-19

PurposeThis study aims to examine the price and income elasticities of short- and long-run industrial electricity demand in Brazil between 2003 and 2020. The research also examines the impacts of COVID-19 in Brazil’s industrial electricity sector, including an analysis in states more and less industrialized.Design/methodology/approachDynamic adjustments models in panel data are used to present robust estimates and analyze the impact of different methodologies on reported elasticities.FindingsThe short-run price elasticity is estimated at −0.448, while the long-run values are around −1.60. Regarding income elasticity, the value is 0.069 in the short-run and is concentrated in 0.25 in the long-run. The inelastic results of income show that the industrial demand for electric energy follows the trend of loss of competitiveness of the Brazilian industry in the past years. In addition, the price of natural gas, the level of employment, and, in specific cases, the level of imports also influence industrial electricity demand.Originality/valueThe research is a pioneer in the investigation of the industrial behavior of electricity of the Brazilian industrial branch, using as control variables, the average temperature, and the level of rainfall, this one, so important for a country whose main source is hydroelectric. In addition, to the best of the authors’ knowledge, it is the first study, which is prepared to analyze the effects of COVID-19 on electric consumption in the industrial sector, investigating these impacts, including in the states considered more and less industrialized. The estimates generated may help in the design of the Brazilian energy policy.

Policy Note: Why Irrigation Water Pricing is Difficult

Could irrigation water pricing be reformed so that the practice of irrigation is less harmful? Answering this question requires insights into how water pricing reform works for different irrigators/crops each with its own price elasticity of irrigation water demand and water supply, and into the political complexity of irrigation water pricing reform. In particular, the full benefits and costs associated with irrigation are an important, but often inadequately understood, element in irrigation water pricing reform. In this paper, these insights are investigated using the theoretical concepts of supply and demand. It is shown that the market cannot provide the full benefits from irrigation and ignores the full costs. It is also shown that the shape of the irrigation water supply and demand schedules, the current equilibrium position and the size of the charge required to get to a socially optimum position all work against irrigation water pricing as a tool that can be used to reduce demand. These concepts can be used to assess the implications of irrigation pricing reform comprehensively, explicitly and consistently, so that the implicit subsidies and externalities become visible.

Futures Market for Demand Responsive Travel Pricing

While transportation funding can be collected in a variety of direct (e.g., fares, tolls, and gas taxes) or indirect (e.g., property and sales tax) ways, dynamic demand responsive pricing not only collects revenue but also incentivizes travelers to avoid peak-demand periods, thus utilizing infrastructure capacity more efficiently. Unfortunately, the demand response to price changes, called the price elasticity of demand, is generally greater for longer-term travel planning (e.g., air and rail travel) than it is for more atomized short-term planning (e.g., highway tolls and transit fares). While this is caused by a plethora of factors (e.g., time flexibility, housing choice, automobile investment, etc.), a critical factor is that travelers simply lack sufficient information for future travel planning. For example, airline prices at different times can easily be compared, but a highway driver cannot accurately predict congestion nor congestion pricing. For this reason, such price changes have little effect on demand. This leaves any congestion abatement up to inefficient trial and error, and anecdotal speculation by travelers. Moreover, dynamic pricing is politically unsavory because of price uncertainty and collateral equity concerns. This article seeks to help remedy these concerns by proposing a simple “futures” market mechanism that can augment existing fare/toll collection technologies, providing travelers with sufficient pricing information and purchasing options to preplan their travel and avoid excessive prices. Users can optionally pre-pay their future fares/tolls to lock in a lower price for expected trips, thus encouraging good travel planning and efficient infrastructure utilization, while reducing price uncertainty.

Cross-country and panel data estimates of the price elasticity of demand for cigarettes in Europe

ObjectiveOur goal is to provide estimates of the price elasticity of demand for cigarettes in Europe as a basis for public health policy on tobacco taxation.MethodsWe use secondary data on...

Estimation of income and price elasticities of Indian electricity demand

This study is the first to analyse Indian electricity demand at both the aggregate and sectoral levels between 1981 and 2020. We use a novel autoregressive distributed lag (ADL) cointegration test in the presence of unknown structural breaks. While the income elasticity is close to one in the residential and industrial sectors, it is greater than one in the aggregate and commercial sectors. These results reveal that economy-wide electricity intensity rises with economic expansion in India. The price elasticity is negative and smaller than one in absolute value in the aggregate sector (−0.66), the residential sector (−0.83), and the industrial sector (−0.63), but it is statistically insignificant in the commercial sector. These estimates allow us to provide sector-specific information for policy design and implementation in the power market.

Model free Reinforcement Learning to determine pricing policy for car parking lots

Finding a parking space has not only become painful but also costs a lot in most of the metropolitan cities. With the increase in number of vehicles and limited resources such as manpower and space, the need for effective management of parking lots has increased. Improper management of parking lots can have negative consequences such as traffic congestion, wastage of time in search of parking spaces, air pollution and even loss of revenue for the parking lot managers. Dynamic pricing is a powerful tool to control the behavior of drivers by diverting them towards the unoccupied and cheaper parking lots. Though there are several existing dynamic pricing strategies, determining the right prices is quite challenging due to lack of knowledge of drivers’ behavior and several uncertainties like harsh weather and special days. In this paper Reinforcement Learning(RL) technique called Q-learning is used to calculate the dynamic prices for parking lots on hourly basis without the need of prior information about the system. Crucial factors like distance of the parking lots from the city centers, weather and holidays are considered in the proposed algorithm to achieve better accuracy. Price Elasticity of Demand (PED) is used in the proposed work to calculate the new state(occupancy) when an action(dynamic price charged by the parking lot owner) is taken place. Hourly prices are estimated using the proposed algorithm and simulation results show that the calculated prices can efficiently manage parking occupancy during peak and off peak hours. The simulation output also shows that the proposed algorithm can successfully increase the revenue of the parking lot owners.

Firms and Technology Adoption: The Role of Political Institutions and Market Size

The study presents a political economy model and analyses how firms behave towards technology up-gradation given the different dynamics of political and market institutions. The model presented here depicts that political power is controlled by the elite, who formulate trade policy to consolidate power. While the middle-class access the production technology and the labour class provides labour inelastically. The model shows that the technology adoption decision of a firm essentially depends upon the political institutions and the market size of the country. Firms in a country with strong democratic institutions adopt new technology more rapidly. While in a weak democracy, firms successfully persuade the elite policymaker to impose higher trade restrictions and obtain higher protection from technologically advanced foreign firms. Moreover, the model also shows that firms operating in a large market adopt technology more rapidly since a large market has a high price elasticity of demand and supports a large number of larger firms. Furthermore, firms adopt technologies more swiftly when the productivity gains from the adoption are relatively large.

Proposing Dynamic Pricing as an Alternative to Improve Technical and Economic Conditions in Rural Electrification: A Case Study from Colombia

Electricity access in rural areas is a critical challenge for global electrification. Most countries have focused on increasing electricity coverage without assessing the long-term sustainability of such solutions. To achieve sustainability in rural electrification solutions, it is necessary to consider five dimensions: technical, environmental, economic, social, and institutional. This paper reviews the state of rural electrification worldwide and proposes a dynamic tariff scheme that increases the technical and economic conditions of implemented solutions over an extended period. The proposed time-of-use (TOU) pricing methodology aims to flatten the system demand curve and utilize on-site renewable energy potentials. For the methodology’s evaluation, we analyzed a case study focused on electrification in isolated areas of Colombia, conducting a sensitivity analysis of user-behavior to the proposed tariff scheme using the concept of price elasticity of demand. We also evaluated the effect of the achieved demand curve flattening on the system frequency. The identified benefits highlight that an accurate pricing scheme can reduce the variation range in the system frequency. Furthermore, the evaluation results show that the implementation of the proposed tariff scheme has the potential to significantly flatten the demand curve and encourage the connection of non-conventional renewable sources to improve network conditions.

Analysis of generation investments under price controls in cross-border trade of electricity

Price controls are commonly employed in Latin America and other regions to prevent price increases in exporting regions during cross-border trade of electricity. This paper introduces a methodology to evaluate the economic impact of price controls on generation investments, dispatch decisions, and carbon emissions in the context of cross-border electricity trade. We propose a non-linear adjusting function to represent a price-control rule, which can be incorporated into equilibrium models for generation firms and price-sensitive consumers. By employing fixed-point iterations between the adjusting function and an optimization problem that determines equilibrium investments and dispatch decisions for generation firms in a competitive environment, we obtain an equilibrium solution. We apply the proposed methodology to analyze the current price controls governing cross-border electricity trade between Chile and Argentina, with a focus on the exporting country. Our findings reveal that existing price controls can impede incentives for renewable energy investments, particularly in wind and solar, while stimulating investments in fossil fuel-based generation capacity. Moreover, these controls lead to increased CO2 emissions compared to a scenario without price controls. Additionally, we observe that the inefficiency resulting from price controls is proportionate to the volume of exports relative to local demand and the price elasticity of demand in the importing region.

Hybrid Power Generation Supply Chain Financing and Purchasing Strategies with Option Hedging against Disruption

Environmental pollution has stimulated cleaner and sustainable energy (CSE) resource consumption which fuels low-carbon electric-power growth. This consumption is particularly affected by two factors. One of them is the power grid’s capital size in the electricity supply chain (ESC) and the other is the carbon emission reduction level elasticity of electricity consumption. Further, the financial strategy directly exerts quantifiable influence on one of the factors of capital size, while the procurement strategy plays a role in another factor. However, the impact of strategic behavior on all participants in the ESC remains unexplored. Thus, we construct a game model for the ESC consisting of two heterogeneous power plants and a strategic power grid with financial constraints, in order to analyze the purchasing and financing strategies for low-carbon electric-power consumption and examine the profit scenario from the credit and option hedging. We find that for the power grid, high self-owned funds level or affluent credit line encourages procurement. And when considering the power grid funds are uniformly distributed on or are constant, this funds property variation surely imposes influence on the wind electricity purchases. We find price elasticity of demand shows monotonic on the purchase when the power grid funds are constant but not necessarily when funds are uniformly distributed. The two power plants pursue the most favorable scenario for profit-maximizing by means of credit interest rate. Whether the power plants increase the financial credit interest is contingent upon option portfolios, the grid’s fund property, and wind yield conditions. We also find whether the relations between the two power plants are competitive or complementary depending on the wind yield rate. Numerical study shows that when the power grid funds are uniformly distributed, executing the double option seems to be the most profitable choice for the power grid and the traditional energy power plant, whereas with the uniform distribution of the grid’s funds, executing the call option but abandoning put is the most profitable to the traditional energy power plant. Moreover, under the grid’s fund of uniform distribution, it can both motivate power user consumption for clean energy generation and expand the power grid’s capital size.

Synthesizing the market clearing mechanism based on the national power grid using hybrid of deep learning and econometric models: Evidence from the Japan Electric Power Exchange (JEPX) market

In liberalized electricity markets, formulating the techno-economic functions of each market's participant restricts the resulting market clearing mechanism (MCM) into the market equilibrium. This study aims to synthesize the MCM based on a new perspective that correlates the nationwide energy supply and demand equilibrium with the wholesale market's prices. The nationwide energy capacities are collected from all the Japanese transmission and distribution utilities from 2016 to 2022. The demand curve is structured based on estimating the price elasticity of demand (PED) considering regional and hourly cross-sections using two-stage econometrics. The supply curve is structured based on the merit order effect of all existing energy production technologies. A long short-term-memory forecasting model is employed to capture the non-stationarity and -linearity of the prices. The estimated PED varies spatiotemporally from −0.017 to −0.25. From the synthesized MCMs, Kyushu region's price drop to nearly zero is justified by the 93.5% clean supply and the use of regional interconnections. Nationally, nuclear, hydroelectric, and hydro-storage contributions to the supply mix and the balancing market launching have mitigated the price spike of 2022. In addition, the planned share increase of baseload resources in 2030 drives the prices lower with higher stability versus the current electricity mix.

AN ECONOMIC ANALYSIS OF THE IMPACT OF THE IRAQI DINAR EXCHANGE RATE ON THE IMPORTED QUANTITIES OF RICE DURING THE PERIOD 1990 - 2020

This research was aimed to analyze the impact of the Iraqi dinar exchange rates for the period 1990-2020 on the imported quantities of rice crop, and to measure the price elasticity of demand for this crop. The (ADRL) model was applied to measure the impact of these prices in addition to the (international price).After conducting the statistical tests (Dickie Fuller test) to examine the stability of the time series of the studied variables included in the model, which stabilized after taking the first difference for them, the results of the analysis showed that international prices had a weak effect on the imported quantities of rice crop, and that these quantities increased at an annual growth rate 6% more than the increase in the annual growth rate of foreign prices amounting to 2%, because the rice crop is one of the basic food crops in the Iraqi consumer list and that it is included in the items of the ration card distributed to individuals and therefore it is imported by the state to meet the need regardless of the rise in its prices. The private sector also imports high-quality brands regardless of prices. As for the equilibrium exchange rate, which is usually higher than the nominal exchange rate adopted by importers in obtaining foreign currency from unofficial markets, the higher the exchange rate, the lower the quantity imported, and the fixation of the nominal exchange rate for many years had a positive impact on the quantities imported by The government, so it is necessary to set an exchange rate for the Iraqi dinar that takes into account the purchasing power towards importing basic food commodities on which the community depends entirely for nutrition.