Lower Average Prices Research Articles

Spatial and Racial Patterning of Real Estate Broker Listings in New York City

It has been well documented that Black homeseekers face discrimination in the housing market in the form of racial steering and other institutional policies and practices that are critical in limiting housing access. Less is known about the mechanisms that operate on the other side of real estate transactions to perpetuate racially segregated neighborhoods. We investigated whether White and Black brokers face segregation in the housing market. That is, to what extent do White and Black brokers differentially market property listings in neighborhoods of varying racial composition? Using real estate listings extracted from the websites of two of the largest New York City real estate brokerages, we examined whether Black and White brokers market properties primarily in Black and White neighborhoods, respectively; and whether, controlling for gender and experience level, Black brokers had a lower average price per square foot than White brokers. Results showed that Black brokers overwhelmingly marketed properties in Black neighborhoods, with fewer listings in White areas. Black brokers also marketed properties with an average price per square foot that was $197 lower than White brokers. Black brokers who worked in offices in Black neighborhoods had the lowest asking price of all brokers. Taken together, Black and White real estate brokers control a bifurcated market in NYC, perpetuating residential segregation and Black-White income and wealth disparities.

Private Labels and International Trade: Trading Variety for Volume

This paper explores the role of pooled-producer, e.g. private label, trade intermediation n shaping the range and diversity of exports. Direct sales maintain a firm's unique product characteristics (`brand equity'), whereas trade through an intermediary can take two forms--either a wholesaling arrangement that (also) maintains the exporter's unique brand but imposes a higher marginal cost (via double marginalization), or a `private label' contract under which the firm's product is pooled with other rms' output and re-sold under a new private label brand created by the intermediary. This paper focuses on the latter, and shows that the availability of the private label option results in greater total export volumes and lower average prices for consumers, but fewer independent varieties available in equilibrium. Welfare implications are mixed: consumers trade variety for volume, firms face greater competition from the new pooled-products, and intermediaries capture much of the gains from trade.

Does the internet level the playing field? Gender and on-line car quotes

This study investigated whether the Internet reduced gender bias in U.S. car price quotes. Previous research has shown that when buying identical cars, women were often quoted significantly higher prices than their male counterparts in traditional on-site transactions. A sample of 114 California car dealership websites was used to examine if gender bias persisted in the online sales channels. Price quotes were requested online by one male and one female persona whose demographic profiles differed only by gender. While no statistically significant difference in the price offered to the male and female was found, the female persona received more price quotes, and a lower average price than the male. These results suggest that when females are in the car buying market, utilizing the Internet can result in more equitable pricing. This not only informs e-commerce pricing and theory development, but consumers and industry representatives interested in internet sales.

Is China Climbing Up the Quality Ladder?

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has three major findings. First, China’s share on the European Union market is larger than would be justified only by its low average prices, implying that the quality of Chinese exports is high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. Finally, our analysis on the supply side determinants reveals that the relatively high quality of Chinese exports is related to processing trade and the increasing role of global production networks in China.

A Laboratory Investigation of Rank Feedback in Procurement Auctions

A popular procurement auction format is one in which bidders compete during a live auction event but observe only the rank of their own bid and not the price bids of their competitors. We investigate the performance of auctions with rank feedback in a simple setting for which analytical benchmarks are readily available. We test these benchmarks in the laboratory by comparing the performance of auctions with rank-based feedback to auctions with full-price feedback as well as to auctions with no price feedback (sealed-bid auctions). When bidders are risk-neutral expected-profit maximizers, the buyer's expected costs should be the same under rank and full-price feedback; moreover, expected buyer costs should be the same as in a sealed-bid auction. However, when we test this theoretical equality in a controlled laboratory setting we find that, consistent with practitioners' beliefs but contrary to our model, rank feedback results in lower average prices than full-price feedback. We identify two behavioral reasons for the difference. The first explanation is based on the similarity of the bidders' problem in a sealed-bid first-price auction and an open-bid auction with rank feedback. The second explanation incorporates the use of jump bids motivated by bidder impatience.

Is China Climbing Up the Quality Ladder?

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China's export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has three major findings. First, China's share on the European Union market is larger than would be justified only by its low average prices, implying that the quality of Chinese exports is high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. Finally, our analysis on the supply side determinants reveals that the relatively high quality of Chinese exports is related to processing trade and the increasing role of global production networks in China. Keywords: Chinese exports, vertical product differentiation, quality ladder, global production networks, discrete choice model, COMEXT database JEL Classification: F1, F12, F14, F15, F23

Low-cost pricing strategies in leisure markets

The practice of dynamic pricing typical of low-cost carriers is generally regarded as a form of price discrimination between “leisure” and “business” travellers on a single flight or route. The same may not be true across different routes because of the different incidence of business travellers. If price increases in the 15 days prior to departure are meant to discriminate business demand, leisure demand should account for earlier price variations. In the present study, we used a database containing the daily fare over the 3 months prior to each flight operated by easyJet during 2009. For each route, we defined the “leisure index” as the difference between the price rates of change during the 90 days and 15 days prior to departure. Overall, “business” routes had lower average prices per km, while “leisure” routes showed less dynamic price behaviour, with higher minimum and lower maximum prices per km.

Is China Climbing Up the Quality Ladder? Estimating Cross Country Differences in Product Quality Using Eurostat's COMEXT Trade Database

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China imposes a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality the prevailing view of the literature is that China exports low quality varieties of the same products than its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has two major findings. First, China’s share on the European Union market is larger than would be justified by its relatively low average prices, implying that the quality of Chinese export products is relatively high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. The relatively high and improving quality of China’s exports may be explained by the increasing role of global production networks in China.

Capacity reservation under spot market price uncertainty

Capacity reservation contracts and spot markets are two alternative purchasing practices. We focus on the cost-effective management of the combined use of these two procurement sources. Due to the variability of the spot market prices and demand uncertainty, the flexibility of combined sourcing can be advantageous. Spot market purchasing is a benefit in case of low spot market prices or insufficient reserved capacity, and the capacity reservation contract is an operational risk hedging for high spot market price incidents. The structure of the optimal combined purchasing policy is complex. In this paper we consider a simple and easy-to-implement capacity reservation—base stock policy and compare it to single sourcing options. We examine the joint effect of demand and spot market price uncertainty. Our analysis shows that in the case of large spot market price variability the combined sourcing is superior over spot market sourcing even in the case of low average spot price. The combined sourcing is also superior over long-term sourcing even in the case of high average spot price if there is large spot market price variability. Analytical and simulation results are presented to show the effect of the different price, cost, and uncertainty parameters on the optimal capacity reservation—base stock policy and on the expected percentage gain over single sourcing.

Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design

This paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20% random sample of the Danish population. We identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design. Thus, within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs. The results suggest low average price responsiveness with corresponding price elasticities ranging from -0.08 to -0.25, implying that demand is inelastic. Individuals with lower education and income are, however, more responsive to the price. Also, essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity.

Pricing in combinatorial double auction-based grid allocation model

This article proposes a novel grid resource allocation model, in which the users and the grid service providers participate in the combinatorial double auction for the resource allocation. To obtain the detailed resource allocation status and the price information, a novel pricing algorithm is designed for the allocation model. Simulation results demonstrate that the proposed algorithm completes the resource allocation and pricing efficiently, and exhibits incentive compatible characteristic. Moreover, users with the higher average price and providers with the lower average price get compensation during the pricing process.

An experimental examination of competitor-based price matching guarantees

We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggests that the mere presence of cost asymmetries may curtail collusive behavior.

Menu Costs and Sale Strategies of Multiproduct Retailers

In a typical sale model, retailers compete for informed consumers by changing prices in every period. Thus, if menu costs resist price adjustments, they prevent not only prices from equilibrating demands and supplies, but also retailers' competition. I investigate the effects of menu costs on the sale strategies of multiproduct retailers. If menu costs are positive and less than a critical level, each store will place a subset of items on sale, so that the marginal menu cost is equal to the benefit of an additional item being on sale. Non-sale items create a problem because they are easily undercut by rival stores. To prevent undercutting, the stores will hide the identity of the non-sale items and choose prices of the sale items from a continuous distribution. Consequently, we observe both regular prices and periodic sales. Over seasonal cycles menu costs do not change, but bulk purchases occur in seasonal peak periods. This triggers more sale items and as a result the stores lower average prices in peaks.

Service Bundling and Quality Competition on Converging Communications Markets

During the last two decades, bundling has become a hot topic for Industrial Organization economists, mainly as a result of legal actions against Microsoft (Crampes and Hollander 2007). In this spirit, the literature has thus far focused on asymmetric settings where one firm holds a monopoly for some type of service, while the competitors have only limited or no market power. In this paper, I consider a symmetric reciprocal duopoly setting, where both firms have some additional market power in their respective home market. This market structure has been constituted in the communications industry as a direct consequence of the digital convergence phenomenon, which led previously distinct integrated network operators to offer essentially the same kinds of services. Today, voice telephony, Internet and TV services are all available from either the telephone- or cable-network incumbents, both of which frequently bundle these services to one so-called Triple Play package. Moreover, previous literature has typically considered communications services as a homogeneous good. To the contrary, I argue that these services differ in various quality measures, such as bandwidth, content, or failure rates. For the firms, the provision of high-quality services is more costly than the provision of low-quality services. Conversely, consumers have a greater reservation price for higher service qualities. Therefore firms face a trade off between revenues and cost when selecting the optimal service quality. While carefully recognizing the technological, legal and economic framework, I have investigated whether bundle pricing is indeed a profitable pricing strategy in this industry, if it can facilitate market power leverage and whether it emerges as an equilibrium strategy. To this extend, a three-stage game was considered, in which firms decide whether to offer their services in a bundle or separately in stage one, determine the quality of their services in stage two, and compete in prices in stage three. I can show that bundle pricing serves as a powerful leverage device. This is achieved through a vertical differentiation effect, which accrues as the firms wish to shield themselves from increased price competition in the market for bundles. Absent bundling, each firm can exploit its limited market power and obtain quality leadership (associated with higher profits) in its home market. Under bundle pricing, however, one firm emerges as the high-quality, high-profit provider in all markets, whereas the competing firm has to settle for low qualities and profits. This quality leverage effect is said to be 'powerful' because it holds under some fairly general terms and for a number of worst-case assumptions. First, recall that market power is rather limited in the present framework because neither firm holds a monopoly position. Nevertheless, leverage is achieved under all feasible settings. Next, I have restricted the analysis to those settings for which interior price equilibria exist for all four possible scenarios of the bundle pricing regimes. Alternative settings tend to strengthen my results. Furthermore, I have assumed consumers' quality preferences to be uncorrelated across service types. This has been shown to be least appreciated by the quality leverage effect because demand is evenly spread out up to every corner of the market. Finally, the quality leverage effect is robust to variations in the cost structure, as long as the costs of quality improvement are convex and fall on fixed costs mainly. It neither relies on service complementarity nor on any other efficiency gains due to economies of scope or transaction costs. The effect even prevails under a unilateral mixed bundling regime. Furthermore, the welfare effects of bundle pricing have been studied under various settings. Quite surprisingly, I found that both consumers' and producers' welfare generally rise, because each group assesses the impact of the price effect and the bundling effect differently: On the one hand, consumers enjoy lower average prices, while on the other hand, firms benefit from reduced service variety. However, the quality leverage effect of bundling crucially affects the distribution of firms' profits and should therefore be considered in the context of price regulation.

24. Pricing in Bertrand competition with increasing marginal costs

Bertrand competition under decreasing returns involves a wide interval of pure strategy Nash equilibrium prices. We first present results of experiments in which two, three and four identical firms repeatedly interact in this environment. More firms lead to lower average prices. However, prices remain substantially above the Walrasian level. With more than two firms the predominant market price is 24, a price not predicted by conventional equilibrium theories. This phenomenon can be captured by a simple imitation model and by a focal point explanation. For the long run, the model predicts that prices converge to the Walrasian outcome. We then use data from three new treatments to properly test the influence of imitation and focality. We find that both forces are present, but that imitation dominates in large markets with a long interaction.

Price competition with repeat, loyal buyers

Extant theoretical models suggest that greater consumer loyalty increases a firm’s market power and leads to higher prices and fewer price promotions (Klemperer, Quarterly Journal of Economics 102(2):375–394, 1987a, Economic Journal 97(0):99–177, 1987b, Review of Economic Studies 62(4):515–539, 1995; Padilla, Journal of Economic Theory 67(2):520–530, 1995). However, in some markets large, national brands that are able to generate more consumer loyalty than their rivals offer lower prices and promote more frequently. In this paper, we develop a two-period game-theoretic, asymmetric duopoly model in which firms differ in their ability to retain repeat, loyal buyers. In this market, we demonstrate that it is optimal for a firm that generates more loyalty to offer a lower average price and promote more frequently than a weaker competitor. Numerical analysis of a more general infinite period version of this asymmetric model leads to three additional results. First, we show that there is an inverted-U relationship between a weak firm’s ability to attract repeat, loyal consumers and strong firm profits. Second, we show that the relative ability of firms to attract repeat buyers affects whether serial and contemporaneous price correlations are positive or negative. Finally, we highlight the effect of dynamics on firms’ expected prices and profits.

PRICES, SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST*

Homogeneous‐producer models attribute lower prices in denser markets solely to lower optimal markups. I argue here that when producers have different production costs, competition‐driven selection on costs also reduces prices. This selection mechanism can be distinguished from the homogenous‐producer case because it implies that higher density leads not only to lower average prices, but to declines in upper‐bound prices and price dispersion as well. I find empirical support for this mechanism in the prices of ready‐mixed concrete plants. I also show these findings do not simply reflect lower factor prices in dense markets, but result instead because dense‐market producers are more efficient.

Dissertation abstract: Essays on pricing in experimental duopoly markets

This dissertation comprises three independent essays that analyze pricing behavior in experimental duopoly markets. The first essay examines whether the content of buyer information and the timing of its dissemination affects seller market power. We construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices. The experiment varies the information on price or product characteristics that buyers learn under different timing assumptions (pre- and post-search), generating four information treatments. Theory predicts that price information lowers the equilibrium price, but information about product characteristics increases the equilibrium price. That is, contrary to simple intuition, presence of informed buyers may impart a negative externality on other uninformed buyers. The data support the model's negative externality result when sellers face a large number of robot buyers that are programmed to search optimally. Observed prices conform to the model's comparative statics and are broadly consistent with predicted levels. With human buyers, however, excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted. The second essay uses experimental methods to demonstrate the anti-competitive potential of price-matching guarantees in both symmetric and asymmetric cost duopolies. When costs are symmetric, price-matching guarantees increase the posted prices to the collusive level. With asymmetric costs, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of guarantees to act as a collusion facilitating device depends on the relative cost difference. Fewer guarantees, combined with lower average prices, suggest that cost asymmetries may discourage collusion. The third essay investigates the effect of firm size asymmetry on the emergence of price leadership in a homogeneous good duopoly. With discounting, the unique subgame-perfect equilibrium predicts that the large firm will emerge as the endogenous price leader. Independent of the level of size asymmetry, the laboratory data indicates that price leadership by the large firm is one of the most frequently observed timings of price announcement. In most cases, however, it comes second to simultaneous price-setting. This tendency to wait for the other firm to announce its price is especially strong when the level of size asymmetry between firms is low. We attribute the lower than expected frequency of price leadership to coordination failure, which is further compounded by elements of inequity aversion.

Exploring determinants of consumer preferences and willingness-to-pay for insecticide treated bed nets before intervention in a poor rural Tanzania

Objective: To explore commodity and human factors associated with willingness to pay (WTP) and consumer preferences for insecticides treated bed nets (ITNs) prior an intervention Design: A two-week-interval test re-test cross-sectional contingent valuation study Setting: The study was conducted in Kisarawe District between September and November 2001 Results:Multivariate analyses showed nuisance of mosquito bites, age of the respondent, knowledge of malaria transmission, self rated health status, prior possession of a bed net, and self rated ability to pay to be significantly associated with maximum open-ended WTP (p<0.005). While, a recent experience with a malaria episode, nuisance of mosquito bites, and the price of an ITN were associated with the probability of giving an affirmative response for the discrete choice question (p<0.005). ITNs characteristics have different relative importance in determining consumer's preferences of and procurement decisions for an ITN. Respondents were willing to pay lower average prices compared to prices presented to them suggesting inability to pay for the market ITN prices. Conclusion: WTP studies conducted in communities before the interventions are implemented, could be useful in providing local information for understanding the local market structure, designing behavioural change messages and establishing affordable local prices and levels of subsidies for promoting potential demand for ITNS.

An Experimental Examination of Competitor-Based Price Matching Guarantees

We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.