Free Market Prices Research Articles

EXTRACTING PRICE SIGNALS FROM THE TERM STRUCTURE OF COMMODITY AND CREDIT MARKETS USING AUSTRIAN BUSINESS CYCLE THEORY

Austrian School economists first explained the significance of interest rates for the structure of production in time. Furthermore, they showed how manipulating the level of interest and the credit supply causes the business cycle (v.Böhm-Bawerk, 1891; v.Hayek, 1938; v.Hayek, 1941 and v.Mises, 1949). More recently, Austrian School economists have elaborated the relationship between the term structure of interest rates and the business cycle (Barnett and Block, 2009; Bagus and Howden, 2010; Bagus et al., 2018; Potuzak and Nemec, 2020; Alonso-Neira and Sanchez-Bayon, 2023). At the same time, market practitioners understand the potency of yield curve inversions as a predictor of future recessions as a result of experience and observation unrelated to Austrian Business Cycle Theory (ABCT). Reference textbooks (Stigum and Crescensi, 2007) explain that capital allocators are pricing in future cuts to the central bank discount rate, thus inverting the yield curve. This ignores the role of free-market price signals in credit, which result from supply and demand fundamentals, and are the link connecting ABCT to term structures.The term structure of commodities markets is also affected by actual or anticipated shortfalls in production over different time horizons. This is widely understood, perhaps because settlement by physical delivery is commonplace and tangible (Hull, 2022). Even though credit and derivatives may at first glance seem more abstract, the same underlying market principles are at work there. The theoretical foundations of and recent work on ABCT provide the necessary tools to analyse both markets through the same lens.

Do Protective Tariffs Influence Firms’ Competitive Stance? Application of a Competitive Leverage Model in The Presence of Simultaneous Equation and Sample Selectivity Bias

ABSTRACT: We propose a Competitive Leverage model, and apply it to analyze the impact of tariffs on the attitudes of domestic import-competing firms, especially regarding their disincentives to maintain a Competitive Stance against foreign competitors in the domestic market. We propose that tariffs are a disincentive to the pursuit and maintenance of production efficiency in firms and industries. When countries implement tariff protection for their domestic firms, the most common excuse sounds reasonable, except that it is also economically flawed. While the short-run impacts of such a measure might seem plausible, its long-term effects appear to be less than favorable, and may, in fact, turn out to be damaging to the economy. The paper applies the competitive leverage concept in a unique way to highlight how tariffs distort the output levels of domestic firms, and gives an empirical analysis of the model, using USA data to verify the predictions of the model. Particularly, we develop a Cournot-competition type Competitive Leverage model, and use it to examine the role played by tariffs as a disincentive to a typical firm’s pursuit and maintenance of production efficiency. The competitive leverage model is formulated and applied to verify the effects of tariff protection from the typical domestic firm’s strategic interaction standpoint. We further apply cross-sectional data to carry out an empirical analysis of the model, to verify how tariffs impact the domestic firm’s output and pricing decisions. Our findings would enable us to contribute to the debate about the need to remove protective tariffs, on the grounds that tariffs do not only enable domestic firms to operate inefficiently, but also tends to distort the output and pricing outcomes that would otherwise have been realized in the free market. The results from the study are used to propose some major policy implications of imposing tariff protection, among which are that there is need for implementation of more deliberately sustained Research and development program on the part of domestic firms in the economy, to enable them withstand vigorous competition in a free-trade world. Also, since protective tariffs significantly increase firms’ profit rates, which in turn enables them to unduly earn and accumulate economic rents that amount to inefficiencies and distortions in free-market prices and quantities outcomes, governments should always resist any pressures from big businesses to impose protective tariffs against competition from international rivals. Yet a clear public policy implication from this paper is that, at the macro level, as the results suggest that a government policy that aims at protecting domestic firms through imposition of tariffs may have an adverse effect on the firms’ competitive stance in the industry, a practical message is for the government to impose only a moderate tariff at the most, if it must, especially as it relates to agricultural products.

Additional public procurements in health services: Lessons from Finnish physiotherapy markets

Private providers are often acquired through public procurements to provide publicly financed health services. The number of contracted providers and their capacity often turns out to be deficient during the contract period. Typically, the purchasers then organize additional procurements or negotiate directly with available uncontracted providers to acquire more capacity. In this study, we examine an unusual additional public procurement in Finnish physiotherapy markets, in which incumbent providers with an existing contract were also eligible to participate. In practice, these contracted providers did not bear any risk when they submitted their bids in the additional procurement. We compare contracted and uncontracted providers’ prices to free market prices using a difference-in-differences approach. The results show that contracted providers increased their prices on average by 9%, while the originally uncontracted providers decreased their prices by 8% compared to the development of free market prices. Although this inefficient procurement led to a waste of public funds, a simple back-of-the-envelope calculation indicates that additional procurement can still be a more efficient way to increase capacity than directly contracting providers that were not contracted in the initial procurement.

Should We Abolish The Minimum Wage?

The discussion on minimum wage is a long-standing debate in economics. The fundamental objective of a NMW is to assist individuals who are remunerated at a low wage that yields below average living standards. To mitigate poverty, the government enacts laws that compel companies to compensate their employees at a wage that surpasses the equilibrium free market price for labour. On the other hand, an increase in the national minimum wage may also lead to an increase in the social unemployment rate. This essay will examine and critically evaluate the merits and drawbacks of NMW policies, and conclude that governments should not abolish the minimum wage altogether.

Retail gasoline pricing in a subsidized energy market: An empirical analysis from AIDS model for Iran

The prevailing gasoline pricing policy in Iran has traditionally been the fixed-price policy, where both rationed and non-rationed prices are set below the free-market prices. This long-standing subsidy policy has led to excessive energy consumption, fuel smuggling, and environmental concerns. However, efforts to reform these subsidies have faced social unrest due to abrupt price increases. To address these issues, we propose a new gasoline pricing policy that incorporates socio-economic factors using the AIDS model. We have categorized gasoline consumption into four groups: less than 60 L (current ration), 60 L–80 L, 80 L–120 L, and more than 120 L per month. Results shows that the price elasticity for the 60 L–80 L group is the highest (−0.94), while it is lowest for the above 120 L group (−0.48). Therefore, we recommend avoiding price increases for groups consuming below 80 L per month to prevent social unrest. Also, we suggest implementing a tax rate of 5% for consumption above the current ration. Under the proposed policy, the non-rationed price of gasoline will vary between the ration price and the Persian Gulf FOB price, depending on consumption levels. This approach ensures that higher levels of gasoline consumption will be associated with fewer subsidies and welfare benefits, and vice versa.

Markov-switching analysis of exchange rate pass-through: Sugar Price in Iran

Due to its inherent role in ensuring food security and as one of the productive sectors of the economy, the agricultural sector has a priority in receiving preferential currency. Having a preferred currency has caused the price of this commodity in the market to be multi-valued. On the other hand, the allocation of billions of dollars at a price lower than the free market price of foreign exchange to imports makes the percentage of the effect of the preferred currency on the price of commodities more important. In such circumstances, it must be determined whether the allocation of preferential or bank currency (42000Rials) to sugar has been able to be transferred to the final price of this commodity. To answer this question, time series data with monthly frequency of domestic sugar prices, official exchange rates and world prices during the years 2011: 03-2019:11 and the nonlinear pattern of Markov MSIAH regime change have been used. The results showed that during the period 2011:03-2019:11, the average monthly growth rate of the price of this product was equal to 1.5 percent. Meanwhile, during the period of implementation of the preferential exchange rate policy, the average monthly price growth rate was equal to 2.7 percent. The results also show that in the short run, the exchange rate pass-through to sugar price in the second regime was significant and equal to 5%. In the long run, the exchange rate pass-through in this regime was equal to six percent.

THE ROLE OF THE MARKET IN IMPROVING THE COMMUNITY ECONOMY ACCORDING TO THE ISLAMIC ECONOMIC PERSPECTIVE (CASE STUDY OF THE SENGGOL KURIPAN MARKET IN INDONESIA)

A market is a place that has rules set up for the exchange of property rights and the exchange of goods between producers and consumer. Islam emphasizes that the market must stand on the principle of perfect competition. However, that does not mean that freedom is absolute. but freedom is wrapped in the frame of shari'ah. The market mechanism in Islam is the existence of market freedom in determining prices. Prices depend on the market. However, Islam does not adhere to the principle of a free market price. Islamic economics views that the market, state, and individual are in balance (iqtishad). The market is guaranteed freedom in Islam. The free market determines the methods of production and prices, there should be no disturbance that results in the destruction of the market balance. Keywords : Mechanism, Market, Islam

Price vs. quantity regulation of volatile energy supply and market entry of RES-E operators

This paper compares price stabilization (such as feed-in tariffs) versus quantity-based policies in supporting the deployment of renewable energy sources to produce electricity (RES-E) under uncertainty. We challenge a widespread view among RES-E supporters claiming that price stabilization provides more investment security and therefore triggers more market entry than free market price fluctuation. Setting up a model with volatile cost or quantity of both conventional electricity production and RES-E, we find that a price stabilization scheme brings about a lower producer surplus for RES-E firms and less RES-E market entry when price fluctuation is induced by the conventional firms’ cost volatility. The opposite holds when the fluctuation results from RES-E firms’ cost or output shocks. With respect to welfare, the second-best quantity policy through a RES-E capacity target always outperforms the second-best policy of price stabilization.

Economic Evaluation of Wind Power Projects in a Mix of Free and Regulated Market Environments in Brazil

The electricity market in Brazil is basically organized under two parts: the regulated market, where energy is traded through auctions, and the free market, where market participants freely negotiate the price and quantity of electricity. Although revenues obtained in the regulated market tend to be lower than in the free market, the auctions’ results show that investors still value the lesser degree of uncertainty associated with the regulated market. However, a growing interest in the free market by investors is recognized since the price of electricity tends to be higher. Therefore, this study investigates four free market price scenarios to assess the expected return for investors, using the traditional discounted cash flow approach complemented with Monte Carlo simulation to address market uncertainty. The study breaks new ground by capturing the weekly price fluctuations and including the price elasticity of demand of the free market. The results seem to indicate that the disclosure of the ceiling and floor price limits for the spot price can signal important information about the agents’ price expectation in the free market and can be used for investment project evaluation.

How does service price influence patients’ decisions? An examination of the free-market pricing mechanism in online health communities

In online health communities (OHCs) in China, physicians can provide online diagnostic services and use the free-market pricing mechanism to price their service so as to encourage quality service. By collecting publicly available patient behavior data for three months for 7726 physicians (with 154,512 records) on an OHC in China, we use the negative binomial model and ordinary least square to empirically investigate the influences of service price on a patient’s sequent decisions including search, purchase, and review based on the medical resource scarcity and social exchange frameworks, and examine how disease risk moderates the magnitude of these effects. Our results show that service price is positively related to patients’ information search and review quality, but negatively related to their purchase and review decisions. In addition, the impacts of service price differ for severe versus mild diseases. Our research contributes to a better understanding of the free-market pricing mechanism on OHCs and provides practical implications for a physician’s pricing strategy in the online environment.

A Hedonic Model with Rationing by Waiting

We propose a new class of hedonic models with sticky prices and queues. Time replaces money as the invisible hand in the market. Unlike money, time is non-transferable to the trading partner. We prove the existence and uniqueness of the equilibrium, and we compare our model with the standard hedonic model with free-market prices. Our model can be used to study the market equilibrium and welfare implications when the prices are regulated, which is beyond the scope of the classical hedonic analysis.

Повышение точности предсказания цены электроэнергии за счет применения комбинированных моделей прогноза

The solution of problems concerned with predicting a free market price for electricity through constructing different prediction models is considered. In so doing, a shift is made from an analysis of conventional regression and auto-regression models of the moving average to the proposed combined multifactor models, which also include the time trend and dummy variables. This shift is partly justified by the specific behavior of the electricity price in the free market, which is caused by a strictly cyclic change of its value, e.g., proceeding from such attributes as the heating season, day of week, etc. The techniques of constructing combined prediction models has been developed to the level of elaborating effective computational procedures based on the Statistica and OsiSoft PI-System software packages. The application of the autoregressive and combined regression prediction models to the Russian market has demonstrated their fairly good effectiveness with an acceptable level of accuracy. A comparison of the achieved levels of accuracy provided by the competing models has not shown any advantages of the shift to the use of combined regression multifactor models in terms of achieving better prediction accuracy; however, their application for analyzing the influence of different factors on the predicted variable may become a fundamental advantage in selecting the type of prediction model. Despite their being limited to an analysis of the Belgorod region market, the obtained results demonstrate the achieved prediction accuracy that is as least as good, and in the main is even better than the majority of the data presented in the review of the results for European electricity markets. The article substantiates the advisability of studying the combined regression models as a tool for analyzing the influence of individual factors as components influencing the electricity price formation for the predicted period, given that the accuracy level of the combined regression models corresponds to the currently achieved electricity price prediction accuracy levels.

Undominatedness of Equilibria in a Mixed Economy of Arrow—Debreu Type

We consider a model of economy with two markets for each product: one—state and the other—competitive. Moreover, both markets coexist in the same economic space allowing free movement of goods and means of payment. In particular, it is assumed that the surplus of products purchased at fixed state prices can be sold at free prices of the competitive market. The important feature of the model is that the manufacturing activity is taken into account both in the state and in the competitive market. While most literature on mixed economies is devoted to the issues of existence and Pareto optimality of equilibria, the focus of the present paper is on analyzing their coalition stability. We continue studying the fuzzy cores of mixed economic models of Arrow—Debreu type which was started earlier for the case of high free market prices. New conditions are established for the coincidence of the sets of undominated and equilibrium allocations, covering the cases of low equilibrium prices for some of the products.

A Comparison of Electricity-Pricing Programs: Economic Efficiency, Cost Recovery, and Income Distribution

This article empirically compares four electricity-pricing programs—increasing-block pricing (IBP); floating increasing-block pricing (FIBP); free market pricing (FMP); and a price-cum-trade incentive system (PTS)—in terms of efficiency, cost recovery, and income distribution by using the residential electricity data of Taiwan. The research results show that IBP and FIBP suffer from the same problem: It is hard to be cost-neutral. Further, FMP is economically efficient while favoring the electric utility over the households. PTS—which is a pricing program that satisfies the second fundamental theorem of welfare economics—shows a better ability to consider economic efficiency and equity simultaneously.

Free market for the environment

The tragedy of the commons is responsible for many, if not all, of the environmental problems concerning natural resource preservation that we face in modern society. The tragedy of the commons describes a situation in which resources held “in common”, namely, public resources, are depleted or mistreated by collective action. Basically it means lack of private ownership and almost inevitably leads to a misallocation of resources. And yet, the predominating kinds of solutions proposed to solve these problems involve increased government regulation—effectively expanding the scope of the very tragedy of the commons which lies at the heart of the problem in the first place. The present paper advocates an alternative: free market environmentalism. It is not a contradiction in terms, despite how that phrase sounds to the modern ear. In this paper we attempt to demonstrate that laissez-faire capitalism is our last best hope for protecting the environment. Free market environmentalism centers around private property rights and thus a decentralization of environmental decision-making. Effective choices made about scarce resources must be based upon free market price signals and incentives. The lack of laissez-faire capitalism applied to earth’s natural resources distorts both of these indicators—causing poorly made and oftentimes destructive decisions. A free market solution to the environment creates the most value for society, allows for open and continuous entrepreneurial innovation, and economically empowers those who are the most environmentally vulnerable.

An inquiry into the origins of fair value

The article aims first to elucidate the role of the Enlightenment in the creation of the notion of fair value. The courts were already defending free market prices by 1750, before the main economic thinkers, Turgot, Cantillon, and Smith formulated their views as to why public welfare was best served by freely made private bargains. It is shown that the attachment of the word “fair” to market value is attributable to Smith’s own understanding of what constitutes distributive justice. A second puzzle addressed in the article is the delay, lasting longer than a century, between the commercial and judicial acceptance of fair value and the later acceptance of it by the standard setters of the accounting profession as the primary way to value business assets and liabilities.

Advertising Regulations in Pharmaceutical Markets: Product versus Enlightenment

This paper analyzes the optimal content regulation of direct-to-consumer advertisement (DTCA) in a pharmaceutical market, with particular focus on the distinction between product and enlightenment advertisement. Firms are allowed to freely promote their own specific products under product DTCA, whereas they can only advertise the presence of a disease and its typical subjective symptoms under enlightenment DTCA. The content regulation changes the nature of market competition and the incentive to invest in advertisement, thereby yielding substantial welfare and policy implications. The overall welfare impact of the content regulation is ambiguous and depends, among other things, on the cost effectiveness of advertisement and the market-size distortion induced by product DTCA. We also analyze the effect of free market pricing and argue that a less stringent advertisement regulation, i.e., product DTCA, is often complementary to a less stringent price regulation.

Встановлення ринкових цін на необроблену деревину

В Україні обсяги використання деревного ресурсу щорічно збільшуються, частину якого на суму понад 1 млрд дол. США експортують за кордон. Вигідність експортування круглого лісу зумовлена ціновою різницею на 30–40 % на внутрішньому та зовнішньому ринках. На сучасному етапі розвитку країни не вдалось реалізувати напрями державної цінової політики зі забезпечення збалансованості ринку необробленої деревини та запобігання зловживанню монопольним становищем у сфері ціноутворення на лісові ресурси. Для відродження вітчизняної деревообробної промисловості та стабілізації поставок деревної сировини на внутрішній ринок в Україні з 2017 р. строком на 10 років заборонено експорт необробленої деревини та дров паливних, завдовжки понад 2 м. В Україні тривають суперечки між лісогосподарської галуззю та галузями лісопромислового комплексу (ЛПК) щодо встановлення справедливого ринкового механізму ціноутворення та динаміки відпускних цін на необроблену деревину. Останніми роками загострились суперечності між великим і дрібним вітчизняним бізнесом деревообробної галузі щодо рівних можливостей закупівель необхідних обсягів деревної сировини та встановлення прийнятних ринкових цін. Дискусійним залишається й питання економічної доцільності та правомірності фактичного керування з боку Держлісагентства України та регіональних органів управління лісогосподарської галуззю процесом встановлення цін на деревну сировину підвідомчих лісогосподарських підприємств. Наведено результати та доведено економічну ефективність для постійних лісокористувачів електронних дистанційних аукціонів з продажу необробленої деревини, проведених упродовж 2017 – І кварталу 2018 рр., порівняно з очними торгами. Визначено основні недоліки та проблеми ціноутворення на продукцію необробленої деревини, що виникають за умов її реалізації на усних аукціонах. Встановлено недосконалість дієвого в Україні механізму організації та проведення аукціонів з продажу необробленої деревини. Запропоновано заходи з поліпшення механізму проведення аукціонів та підходів до ціноутворення на продукцію необробленої деревини.

Molybdenum resources: Their depletion and safeguarding for future generations

Comparison of the current extraction rate of molybdenum with the globally extractable resources of molybdenum shows that exhaustion of molybdenum within fifty to hundred years will be a reality. Unless measures are taken to reduce the use of primary molybdenum resources, the transition to a fossil-free energy world could be jeopardized. This study argues that the global use of primary molybdenum resources needs to be substantially reduced at short notice, if humanity wishes to take the interests of future generations into account. We investigated how this goal can be achieved. The study shows that the focus should be on increasing molybdenum recycling, because there is little or no substitution potential for molybdenum in its major applications. It will be necessary to increase the recycling rate of molybdenum from end-of-life products from the current rate of 20% to more than 80%. This ambitious goal can only be achieved by introducing a dedicated molybdenum waste collection, separation, and recycling system. It is highly uncertain that the free market price mechanism will work in time and sufficiently to preserve molybdenum resources for future generations.

Technology Focus: Gas Production Technology

Technology Focus What do you do when the power goes out? That situation might evoke the tranquility of putting down your smartphone and looking out the window for a few moments of quiet reflection. Or it might bring the anxiety of wondering if your indoor plumbing will freeze when the power fails on a cold, dark night. But what if it brought the panic of being in the middle of a difficult childbirth operation in a remote hospital that has access only to unreliable electricity generated by intermittent sources? That is the painful reality outlined in The Moral Case for Fossil Fuels, a new book written by Alex Epstein. With a background in philosophy, Epstein wonders why we all seem to accept that the world is “addicted” to our “bad” product while that same product provides us with a standard of living only available to royalty a century ago. With an unbiased perspective, he notes that increased fossil fuel use correlates strongly with increased standard of living, wealth, life expectancy, and food availability and decreased deaths from severe weather events. Why are we so negative about something that has done so much good for so many people? Anthropogenic-global-warming activists argue that returning the climate to prehuman conditions is their ultimate goal, even if decreasing human wellbeing is required. They conveniently forget that the climate was changing before humans arrived, the climate will continue to change after we are gone, and that we have never been successful in attempts to “unchange” the climate. They endorse naive energy alternatives at impractical prices or that are only found in science fiction. To their credit, science fiction does eventually come to pass sometimes; but, do we power hospital equipment with wishful thinking until then? The US Energy Information Administration predicts that, from 2012 to 2020, subsidized intermittent wind and solar energy will nearly double from 3.9 to 6.5% of total world energy consumption. Meanwhile, natural gas provides reliable heating, cooling, and electricity at free-market prices for billions of people. Each year, gas-fired power plants allow millions of additional people to gain their first access to dependable electricity for lighting, smoke-free cooking, and, yes, 21st-century health care. On the basis of long-term fuel-use trends, we can expect that, within a couple of centuries, the sun may provide the same large-scale, low-cost, and reliable power now provided by natural gas. Until then, I will take that rare opportunity when my office loses power to remember to be grateful for the standard of living that fossil fuels have provided for me and billions of other lucky people around the globe. JPT Recommended additional reading at OnePetro: www.onepetro.org. SPE 174852 Liquid Loading of Highly Deviated Gas Wells, From 60 to 88° by Y. Alsaadi, University of Tulsa, et al. SPE 177567 Integrated Methodology for Production and Facilities Analysis To Optimize Barnett Shale Gas Production— A Case Study by A.A. Moniem Ahmed, Schlumberger, et al. SPE 179537 Experimental Study on Revaporization Mechanism of Huff ’n’ Puff Gas Injection To Enhance Condensate Recovery in Shale Gas/Condensate Reservoirs by Xingbang Meng, Texas Tech University, et al. SPE 180247 Infill-Drilling Opportunity in Fruitland Coal, San Juan Basin, Colorado by Prannay Parihar, Chevron, et al.