Equilibrium Price Changes Research Articles

How Do Nutritional Warning Labels Affect Prices?

Obesity is increasing worldwide, and in many countries, the problem is particularly serious among lower-income groups. Front-of-pack nutritional warning labels are a prominent regulatory tool to fight obesity and have been implemented or are currently being debated in many countries. Existing studies document that warning labels incentivize consumers to substitute away from unhealthy products. However, not much is known about equilibrium price changes in response to consumers’ utility for warning labels. Using household purchase data in the cereal category, this article studies the adjustments of prices after the mandatory introduction of warning labels in Chile. The authors develop a model showing that warning labels lead to higher prices of labeled cereals, as is also observed in data. In contrast, prices of unlabeled products tend to drop or at least increase less, incentivizing price-sensitive consumers to remain in the category. The authors decompose postlabeling market share adjustments into a pure label effect that fixes prices at initial levels after regulation and a total effect that accounts for price reoptimizations. Their findings point to self-enforcing effects of a warning label regulation as the price adjustments amplify policy makers' goal of reducing unhealthy food intake, especially because market forces incentivize low-income segments to choose healthier alternatives.

Dynamics of Equilibrium Prices With Differential and Delay Differential Equations Using Characteristic Equation Techniques

This study compares differential model to delay differential model in terms of their qualitative behaviour with respect to equilibrium price changes using roots of characteristic equation techniques. The equilibrium states of both price adjustment models were simulated using inputs from same source. The study found that irrespective of initial prices set for the system, the current price of the differential model would always move monotonically towards the equilibrium price defined for the system. However, the current price of the delay- differential model will fluctuate and move away from the initial prices due to the delay parameter associated with the supply, then gradually decrease and turn towards the defined system equilibrium price.
 
 Results from the study also showed that current prices in the delay-differential model are not predictable at the initial stage due to the time delay parameter in the supply function of price. On the other hand, current prices in their counterpart models without delay are predictable, as they always converge to the equilibrium price points defined in the system. Since most economic and physical systems are time delay inherent, it is recommended that such systems are modeled using delay-differential equations to reflect realities of the phenomena.

The Dynamics of Belief Formation and Price Momentum

In classical perfect and complete markets, prices form a Martingale and stock returns (or equivalently, successive price changes) are serially uncorrelated. However, there is considerable evidence in the finance literature showing that stock returns are serially correlated both in the short and the long-term. This empirical phenomenon has been viewed as a violation of semistrong efficiency and has resulted in considerable discussion in the literature. In this paper we demonstrate that within a multi-period noisy rational expectations equilibrium framework, a first order autoregressive (AR-1) liquidity trading process, by itself, suffices to give rise to systematic correlations in price changes, either positive or negative, depending on the specific parameters of the process, even if the (unknown) underlying liquidation value is fixed. That is, unsystematic random fluctuations in observed prices arising from factors such as liquidity trading affect Bayesian belief formation, and thereby trading strategies, in such a way that equilibrium price changes can manifest both momentum and reversals.

The Price and Variety Effects of Vertical Mergers

Vertical mergers within a multi-echelon market result in equilibrium price changes, for wholesalers and retailers, alike. They may also impact the product variety that is available to the consumer, i.e., the equilibrium product assortment sold in the market. In this paper, we consider the simultaneous price and variety effects of vertical mergers in a general two-echelon base model, in which an arbitrary number of firms compete at each echelon; each of the upstream suppliers offers one or multiple products to some or all of the retailers or directly to the end consumer. We assume linear price or two-part tariff contracts, with prices selected sequentially, in a sequence of oligopolistic price competitions: the process starts with the firms at the upper echelon, followed by simultaneous price selections by the retailers in the downstream echelon. To assess the impact on product variety, we employ a demand model with the characteristic that, depending on the selected retail prices, a smaller or larger subset of all potential products is sold in the market. For an arbitrary merger of a supplier with a group of retailers, we characterize the post-merger equilibrium behavior and show how the changes of all performance measures of interest, i.e., wholesale and retail price equilibria, product assortment, sales volumes, the firms' profit levels and consumer welfare, can be computed efficiently. When the merger is strictly vertical, i.e., involves a single retailer (organization) with whom the supplier deals on an exclusive basis, we prove that the merger results in a (weak) reduction of all equilibrium prices, along with a (weak) shrinkage of the product assortment.

Assessing demand response and smart metering impacts on long-term electricity market prices and system reliability

This paper proposes a long-term electricity market analysis framework to assess the impacts of the demand response and smart metering infrastructure implementation on market price fluctuations and system reliability. Based on the probabilistic production cost simulation method that has been widely used in conventional power system planning, the suggested framework considers the uncertainties of the demand and the generator availability in a probabilistic manner. Furthermore, the framework considers the strategic interactions between generators (or, equivalently generation companies) and incorporates price responsive demand enabled with smart metering. To demonstrate how market equilibrium price changes and the system reliability enhances as the demand response with smart metering increases, the framework is applied to an experimental system based on the IEEE 1996 Reliability Test System (RTS) data, followed by a case study of 2010 Korean electricity markets.

Impacts of water cycle changes on the rice market in Cambodia: stochastic supply and demand model analysis

A supply and demand model for rice in Cambodia, which includes among other factors evapotranspiration as a water supply variable impacting regional yields and planted areas, is developed to aid in the design of agricultural policies and planning. Impacts are determined stochastically by drawing on water cycle distributions and evaluating the resulting variation in production and price bands for local rice markets. The results of the baseline analyses indicate that production of wet and dry season rice steadily increases and the consumption per capita slightly decreases due to the negative income elasticity. Results of a partial stochastic analyses show that the production of rice in regions where elevations are high and the land vulnerable to flooding are the most sensitive to increased fluctuations in water supply. The changes also affect the rice market through equilibrium price changes. The upper price band, which is the width between average and 90th percentile, is larger than the lower band, which is the width between average and tenth percentile, suggesting that the situation of low income consumers could grow worse under an unstable environment with relatively larger upward price spikes. The results imply that development of irrigation facilities and water management systems maybe required for Cambodian provinces which rely heavily on agriculture, particularly rice production, under increasing climatic variation.

Combining Microsimulation with CGE and Macro Modelling for Distributional Analysis in Developing and Transition Countries

This paper overviews recent work that has attempted to bring together microsimulation, Computable General Equilibrium (CGE) and macro models to perform distributional analysis in developing and transition countries. Particular attention is paid to applications relating to aspects of economic growth and political economy. Applications in which macro, CGE and microsimulation models are either layered or integrated are considered. It is demonstrated that different combinations of such models, including those where only a single model-type is used, are appropriate for different problems. For short- run impact analysis, microsimulation on its own may be appropriate. For longer-run analyses, where interest is in the interrelationship between changes in disposable income, consumption and labour supply, these models need to be supplemented a combination of microsimulation on the one hand, and general equilibrium price changes or changes in macro variables on the other hand. In the case of national subregions, or countries embedded in free-trade areas, it is argued that microsimulation may adequately be combined with pure macro models. That is, CGE modelling may not be necessary. For distinct national economies, however, the first step beyond microsimulation should likely be integration with CGE modelling. Whilst much promising work has been undertaken on dynamic integrated CGE microsimulation work in developing countries, CGE work is most advanced for Less Developed Countries. At present several groups of development researchers are found to be putting these two approaches together, and in some cases are adding macroeconomic and financial modelling as well. In contrast, with a few conspicuous exceptions, little such work is being done for the transition economies.

Dynamic variable input-output (VIO) model and price-sensitive dynamic multipliers

The conventional multipliers of macro economic models, econometric models, Computable General Equilibrium (CGE) models with fixed industrial purchase I/O coefficients, and Leontief Input-Output (I/O) models are price-insensitive. On the other hand, the multipliers of the Dynamic Variable Input-Output (VIO) model have the advantage of being price-sensitive. The Dynamic VIO model extends the static single regional version of the Multi-Regional Variable Input-Output (MRVIO) model, which is a hybrid of Computable General Equilibrium (CGE) model and the further developed Leontief's dynamic Input-Output (I/O) model. The Dynamic VIO model, which incorporates time dimensions, can describe the actual situations more accurately while maintaining computational simplicity. Under this model, both technical coefficients and capital stock requirement coefficients include price terms, and they become variable instead of being fixed. By using the 15 sector industrial transaction table derived from the 1987 U.S. Benchmark input-output table, and by assuming constant technology during the years of 1987–1991, I estimate the dynamic equilibrium price changes due to wage rate changes and measure the effects of the relative equilibrium price changes on output, income, and employment multipliers that are spread over the time periods. The dynamic multipliers of the Dynamic VIO model include both pure spending effect and substitution effect in the presence of input cost changes such as wage rate changes. The substitution effect is the relative equilibrium price change effect, and it occurs due to the substituting behavior of firms and consumers seeking cheaper products. Actual economic impacts that we observe in a given time period, as the result of government spendings, are the total cumulative effects of the current and previous time periods. The empirical analysis shows that wage rate changes during 1987 through 1991 give statistically significant effect on mean equilibrium price changes for the total of five years and for each time period except the immediate time period (lag 0) under 1% level of significance. As for the immediate time period (lag 0), mean equilibrium prices are same between the two groups of wage rate-change and no-wage rate-change cases. Nevertheless, equilibrium price changes affect output, income, and employment multipliers significantly. Hypothesis tests show that significant differences exist in mean output, income, and employment multipliers between the two groups of wage rate-change and no-wage rate-change cases for each time lag (1–4) and for the total of five time lags. The dependent t-test is applied to the paired data. The study concludes that substitution effects do alter mean output, income, and employment multipliers for each time lag (1–4) and for the total of all five time lags under 1% level of significance. Furthermore, the study finds that mean multipliers of output, income, and employment under the wage rate-change case are smaller than those under the no-wage rate-change case. For the immediate time period (lag 0), the significance level should be increased to 2%, 13%, and 5%, respectively, to support the claim that mean multipliers of output, income, and employment are different between the two groups, and that mean multipliers of output, income, and employment of the wage rate-change case are smaller than those of the no-wage-rate change case. These strong empirical results demonstrate the capability and usefulness of the Dynamic VIO model for measuring government spending effects in terms of price-sensitive dynamic multipliers.

Welfare implications of a preferential tariff reduction for agricultural exports from less developed countries vs. a generalized tariff reduction

The paper presents the results of a theoretical study focusing on a comparative evaluation of the welfare effects of a preferential tariff reduction for agricultural exports from less developed countries versus a generalized tariff reduction. The results are derived using a diagrammatic approach. The analysis is developed within a partial equilibrium framework with one commodity, three large countries (importing developed country, exporting developed country, developing country), fixed exchange rates and zero transportation costs. The theoretical model makes provisions for a country to switch from being an exporter to being an importer, or vice versa, as the equilibrium price changes. Three alternative policy scenarios are analyzed: the imposition of a non-discriminatory tariff, a preferential tariff reduction, and a generalized tariff reduction. Two alternative definitions of the welfare functions are used. One is based on consumers' and producers' surplus, the other adds domestic income and changes in foreign exchange earnings/expenditure. Some methodological implications of the specific model used are discussed, along with the impact, in terms of welfare, of the policy scenarios considered.

Welfare Implications of a Preferential Tariff Reduction for Agricultural Exports from Less Developed Countries vs. a Generalized Tariff Reduction

AbstractThe paper presents the results of a theoretical study focusing on a comparative evaluation of the welfare effects of a preferential tariff reduction for agricultural exports from less developed countries versus a generalized tariff reduction. The results are derived using a diagrammatic approach. The analysis is developed within a partial equilibrium framework with one commodity, three large countries (importing developed country, exporting developed country, developing country), fixed exchange rates and zero transportation costs. The theoretical model makes provisions for a country to switch from being an exporter to being an importer, or vice versa, as the equilibrium price changes. Three alternative policy scenarios are analyzed: the imposition of a non‐discriminatory tariff, a preferential tariff reduction, and a generalized tariff reduction. Two alternative definitions of the welfare functions are used. One is based on consumers' and producers' surplus, the other adds domestic income and changes in foreign exchange earnings/expenditure. Some methodological implications of the specific model used are discussed, along with the impact, in terms of welfare, of the policy scenarios considered.

Volume and turn-of-the-year behavior

Abstract This paper studies the trading characteristics of listed companies by size, and year-end behavior. There were no transactions on nearly 25% of the days for the smallest decile even at the turn of year which is an active trading period for small companies. As a result of low levels of trading and the regulations governing exchange specialists, transaction prices and quotations of small listed companies may require several days to fully reflect equilibrium price changes. The data confirm the existence of a year-end seasonal pattern in rates of return for small companies and suggest that there may be a seasonal pattern for large companies as well.