Market Transaction Costs Research Articles

Distance‐Based Agglomeration Externalities and the Survival of Logistics Firms: Evidence From a Publicly Developed Logistics Park

ABSTRACTNumerous studies have shown that agglomeration externalities play a crucial role in the survival prospects of logistics firms. However, previous studies have largely ignored the role that agglomeration externalities play at a more granular level. Therefore, this paper used Chengdu International Railway Port as a case study, constructed a distance‐based agglomeration measure to explore the impact of agglomeration externalities on the survival of logistics firms located within a publicly developed logistics park (PDLP). The results show that the three types of agglomeration externalities coexist and are highly localized in the PDLP, and their effects change with distance from the logistics firm. Specifically, the specialization externalities operate within 1.5 km of the logistics firm and produce competitive effects within immediate proximity (0.5 km). Second, while diversification externalities cause significant congestion effects, interindustry knowledge spillovers arising from related diversification externalities play a key role in the 0.5 km proximity of logistics firms, and unrelated diversification externalities play a positive role in reducing the market transaction costs of logistics firms outside the 0.5 km range.

Has digital infrastructure accelerated enterprises' specialization? Evidence from China

PurposeThis paper intends to explore the impact and mechanism of digital infrastructure development on enterprises vertical specialization. The following questions are discussed: (1) What is the impact of digital infrastructure on enterprise vertical specialization? (2) If the digital infrastructure serves to raise the level of vertical specialization of enterprises, does the impact differ depending on the level of city, industry and enterprise?Design/methodology/approachThe research employs the “Broadband China” strategy as a quasi-natural experiment for digital infrastructure development, with a multi-period difference-in-difference model constructed to test the research hypothesis. The study examined data from Chinese A-share enterprises listed between 2007 and 2019.FindingsThe study’s findings indicate that the construction of digital infrastructure significantly increases firms' vertical specialization. According to the mechanism analysis, digital infrastructure can increase vertical specialization by lowering market transaction costs. This study employs group regressions in terms of cities, industries and companies to gain a better understanding of the heterogeneity of this effect. The results indicate that digital infrastructure contributes more significantly to higher levels of vertical specialization among enterprises in areas with higher levels of innovation and entrepreneurship as well as in eastern and central cities, service industries, and mature firms.Research limitations/implicationsThere are two shortcomings to this study that warrant investigating further. The first limitation is the mechanism. This study simply looked at the mechanism between variables in terms of transaction costs, using existing theories. As the level of technology continues to improve, the process of digital infrastructure’s impact on vertical specialization requires greater investigation. Another weakness of this study is its country-specific focus. The effect of digital infrastructure on vertical specialization differs by country, reflecting disparities in economic growth. Further discussion of cross-national comparative studies is required.Originality/valueThe study’s marginal contributions are largely represented in the two aspects listed below: (1) This paper includes a comprehensive theoretical study of the influence of digital infrastructure development on vertical specialization, focusing on transaction costs. This provides a theoretical foundation for the empirical study presented in this paper; (2) this study fills the gap in earlier research in this field, and the findings broaden research findings in areas such as digital infrastructure development and vertical specialization.

Index futures mispricing: a multi-regime approach to the NIFTY 50 Index futures

PurposeThis study investigates the mispricing dynamics of NIFTY 50 Index futures, drawing upon daily data spanning from January 2008 to July 2023.Design/methodology/approachThe study employs both a single regime analysis and a tri-regime model to understand the fluctuations in NIFTY 50 Index futures mispricing.FindingsThe study reveals a complex interplay between various market factors and mispricing, including forward-looking volatility (measured by the NIFVIX index), changes in open interest, underlying index return, futures volume, index volume and time to maturity. Additionally, the relationships are regime-dependent, specifically identifying the regime-dependent nature of the relationship between forward-looking volatility and mispricing, the impact of futures volume on mispricing, the effect of open interest on mispricing, the varying influence of index volume and the influence of time to maturity across the three distinct regimes.Practical implicationsThese findings offer valuable insights for policymakers and investors by providing a detailed understanding of futures market efficiency and potential arbitrage opportunities. The study emphasizes the importance of understanding market dynamics, transaction costs and timing, offering guidance to enhance market efficiency and capitalize on trading opportunities in the evolving Indian derivatives market.Originality/valueThe Vector Autoregression (VAR) and Threshold Vector Autoregression Regression (TVAR) models are deployed to disentangle the interrelationships between NIFTY 50 Index futures mispricing and related endogenous determinants.Research highlights (1)This study investigates the Nifty 50 Index futures mispricing across three distinct market regimes.(2)We highlight how factors like volatility, futures volume, and open interest vary in their impact.(3)The study employs vector auto-regressive and threshold vector auto-regressive models to explore the complex relationships influencing mispricing.(4)We provide valuable insights for investors and policymakers on improving market efficiency and identifying potential arbitrage opportunities.

Sustainable Food Value Chains: Approaches to Transaction Costs in Agro-Alimentary Systems of Developing Countries—A Chile Case Study

This study delves into the dynamics of price linkages and transaction costs in agricultural markets, emphasizing the sustainability of food supply chains. By exploring vertical and horizontal price linkages in agro-farming value chains of a developing country, it addresses the efficiency of market information transmission and the capacity for arbitrage among chain participants. The methodological core of the research involves analyzing price linkages in Chilean horticultural wholesale markets, focusing on key vegetables such as, onions, lettuce, maize, and tomatoes. This analysis is underpinned by a novel approach that models and estimates time-dependent, conditional threshold bands, extending the traditional cointegration models. This method allows a more nuanced understanding of how agricultural market linkages evolve over time, enhancing our comprehension of price transmission behavior and market integration. The results reveal significant non-linear relationships between fuel prices and vegetable prices, particularly in central Chilean regions. This finding challenges the traditional linear perspective, suggesting that factors such as storage capacity and arbitrage behavior can influence price signal transmission. Such insights are crucial for stakeholders in the agribusiness value chain, offering a deeper understanding of market dynamics and aiding in the development of more sustainable and efficient market strategies. This research contributes significantly to the field of agricultural economics by providing a more robust framework for analyzing market behaviors and transaction costs in the context of sustainability and value chains. Its findings have profound implications for both theory and practice, informing policy-making and strategic decision-making in the agribusiness sector.

Liquidity dynamics between virtual and equity markets

This paper estimates liquidity dynamics between virtual and real assets from multiple dimensions, namely market capacity, transaction cost and market efficiency. The data covers transaction information of crypto markets and four equity exchanges (US, UK, EU and Japan) between January 2019 and December 2022. The first result shows a two-way liquidity risk feedback loop between virtual and real markets, and the second result confirms dynamic liquidity interactions between them. The US market is identified as a transmitter rather than a receiver of liquidity risk but may not escape cumulative liquidity shocks.

Does Informatization Cause the Relative Substitution Bias of Agricultural Machinery Inputs for Labor Inputs? Evidence from Apple Farmers in China

The change of information scenario may change the market transaction cost of different factors, thus changing the relative price of factors and inducing the substitution of production factors, but there is no research to prove this. Therefore, this study takes labor-saving technology (mechanical substitution of labor) as an example, evaluates informatization from three aspects of information technology access, information technology application and information literacy comprehensively, and uses the probit model and CMP method to analyze whether informatization causes the substitution of agricultural machinery inputs for labor inputs and its heterogeneity. The results show that informatization has a significant negative impact on farmers' choice of labor-saving technology, and the result is robust at the regional level, but the negative impact of informatization on farmers' choice of labor-saving technology in the eastern region is smaller than that in the western region. The level of information literacy has the largest negative impact on farmers' choice of labor-saving technology, followed by the level of access to information technology, and the level of application of information technology has the smallest impact. The study concludes that informatization has not led to the significant substitution of labor by machinery in apple production. Thus, the results are important for enriching the theory of induced change in agricultural technology in the context of informatization.

Exploring the factors shaping the illicit caviar trade: A case study of Switzerland's evolution from 1998 to 2021

This exploratory study investigates the evolution of illegal caviar trade in Switzerland from 1998 to 2021, considering the interplay of supply, demand, and regulations. Through a case study approach, interviews with eight experts in wildlife and caviar trades are analysed using a general inductive analysis methodology, guided by the market reduction approach and transaction cost theory. The study identifies two distinct periods in the evolution of the illegal caviar trade in Switzerland: the "conservation problem" period (1998–2010) and the "regulatory problem" period (2011–2021). Applying the CAPTURED model, the attractiveness of caviar as an illicit commodity is analyzed. The findings also highlight two key factors that contributed to Switzerland’s shift from a potential caviar trade hub to a country with limited customs seizures for private travelers: market dynamics (demand and supply shifts) and regulatory changes. Whereas import regulations played a crucial role in curbing the illicit caviar market by increasing control and detection risks, shift in demand may have contributed to the self-perish of wild caviar trade, while shift in supply may have grown criminal interest toward selling wrongly labelled rather than openly poached caviar. The study also considers the presence of undetected organized crime groups and the challenge of using seizures as an indicator of illegal trade. Given the potential for changes in market structure and regulatory frameworks, ongoing and vigilant monitoring of the caviar trade is emphasized as necessary. This research highlights the importance of effective regulatory measures and consumer awareness in combating this crime against the environment.

Examining spatial market efficiency under different marketing regulations: The case of Turkish lemon markets

AbstractThis study evaluates spatial market and storage efficiency in Turkish lemon markets using switching regime (SR) and threshold autoregression models. Our sample period includes a crucial regulatory reform aimed at improving the performance of fresh fruit and vegetable markets, shortening the production‐consumption chain, and reducing retail prices. Using an extended SR model that allows for a gradual transition from the old to the new marketing regime, we test the hypothesis of no structural change in market efficiency and transaction costs in regional markets, including major consumption regions Istanbul, Ankara, and Izmir. Results indicate that the probability of efficient arbitrage regime is relatively higher in the post‐reform period, albeit there is still room for improvement. Extended SR models show no significant change in average transaction costs, while threshold autoregression models suggest a slight increase. Furthermore, spatial prices adjust more quickly in the post‐reform period, supporting relatively more efficient market functioning. While the regional markets seem to function more efficiently following the marketing reform, it has not led to permanent reductions in retail prices. Finally, our results from storage threshold autoregression models suggest that markets function reasonably efficiently, with no remarkable difference in storage behavior between the pre‐reform and post‐reform periods.

The Endowment Model and Modern Portfolio Theory

We develop a dynamic portfolio choice model with illiquid alternative assets to analyze the “endowment model,” widely adopted by institutional investors, such as pension funds, university endowments, and sovereign wealth funds. In the model, the alternative asset has a lockup but can be liquidated at any time by paying a proportional cost. We model how investors can engage in liquidity diversification by investing in multiple illiquid alternative assets with staggered lockup expirations and show that doing so increases alternatives allocations and investor welfare. We show how illiquidity from lockups interacts with illiquidity from secondary market transaction costs resulting in endogenous and time-varying rebalancing boundaries. We extend the model to allow crisis states and show that increased illiquidity during crises causes holdings to deviate significantly from target allocations. This paper was accepted by Bruno Biais, finance. Funding: S. G. Dimmock gratefully acknowledges financial support from the Singapore Ministry of Education [Grant R-315-000-133-133]. N. Wang gratefully acknowledges support from CKGSB Research Institute. J. Yang gratefully acknowledges the support from the National Natural Science Foundation of China [Grants 71772112, 71972122, and 72072108], Innovative Research Team of Shanghai University of Finance and Economics [Grant 2016110241], and Shuguang Program of Shanghai Education Development Foundation and Shanghai Municipal Education Commission. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2023.4759 .

Spatial Market Integration, Price Transmission and Transaction Costs in Major Onion Markets of India

The price information is one of the prime objectives of marketing strategies, and the farmers are unable to determine the marketing strategies without knowing the price movements of the agricultural commodities. In this context, the study has examined the spatial price integration among four major onion markets using the threshold vector error correction model (TVECM) that takes into account transaction costs in the price adjustment process. Augmented Dickey–Fuller and Phillips–Perron tests for unit root suggest that the time series is I(1). The application of the Johansen cointegration technique supports the presence of long-run price association and equilibrium in all pairs of onion markets. The Granger Causality test unveils that Bengaluru Granger causes all the markets except Kolkata. The Hansen and Seo supreme Lagrange Multiplier ( SupLM) test of linearity suggests that non-linear TVECM with one threshold and two regimes is best fit for the underlying data for three pairs of markets. While the rest of the three pairs, the SupLM test rejects the null of linearity, therefore, linear vector error correction model (VECM) is estimated. Finally, VECM and TVECM results reveal that Mumbai and Bengaluru are dominant markets in price formation in rest of the markets. Against these findings, it is suggested that the prices should be stabilised in the dominant markets so that the price shocks are not transferred to other markets. The threshold parameter, which is analogous to transaction cost, reveals the high transaction costs between the selected markets pairs, especially Mumbai and Delhi. One of the reasons for the high transaction costs may be the inefficiencies in infrastructure and communication. While a more correct explanation for this difference can be attributed to the differences in marketing fees, taxes, commission charges, license fees, etc., across the spatially separated agricultural markets. JEL Codes: Q1, Q13, D4, C22, D23

Does private sector involvement improve the distribution efficiency of subsidized fertilizer? A natural experiment from Nepal

AbstractDespite the government spending significant amounts on fertilizer subsidies, Nepal's average fertilizer application rate is lower than in other South Asian countries. The low application is attributed to poor access to fertilizer and an inefficient distribution system. The government of Nepal issued a “Fertilizer Distribution Directive (FDD) 2020” to improve the distribution system. We assessed the impacts of involving the private sector in selling fertilizer to farmers. We examined whether the market transaction cost proxied by farmers’ search cost (communication and travel cost), travel time to visit the stores, and the opportunity cost of time spent in purchasing fertilizer have been reduced by FDD 2020. A difference‐in‐difference approach refined with propensity score matching was used to estimate the fertilizer distribution efficiency using survey data from 619 households across six districts. Private sector involvement was found to reduce travel time to fertilizer retailers by about 10 min and transaction costs to purchase subsidized fertilizer by about 20 Nepalese Rupees (NPR) per season, compared to the conventional approach of sale by farmer cooperatives. Implementation of the directive has removed the bias of cooperatives selling fertilizer only to members, especially medium and large‐scale farmers. The directive and private sector involvement have led to a more equitable and efficient distribution of subsidized fertilizer. However, the government should routinely monitor and regulate the fertilizer mainly targeted to the private fertilizer retailers.

Strategic Alliances Practices on Performance of Local Airlines in Kenya

Freedom in the airline industry coupled with deregulation has created variation in fares in response to demand, created by the challenging and ever-changing competitive environment leading to the entry of many airlines in the industry. However, airlines have been met with many challenges to remain operational and competitive in the industry. Airlines have changed their dynamics of operation to counter network carriers in the industry by forming strategic alliances, which have become a powerful tool for these airlines, enhancing revenue, expanding networks, and rationalizing costs. The main purpose of this study was to assess strategic alliance practices on the performance of local airlines operating in Kenya. Specifically, the study sought to: Determine the effect of entry behavior practices, Competitive market practices, Bargaining power, and Transaction costs on the performance of local airlines The study was anchored on the following theories: Market power, Transaction cost, RBV of a firm, and The institutional theory The study used a descriptive research design and targeted all 59 Airline companies currently operating in Kenya. The study purposively targeted the heads of Strategy, Marketing, Product and Development, and Finance, yielding a total of 236 respondents. However, the study scientifically applied a 30% sampling technique of the target population to attain a representative sample size of seventy–one study respondents. Primary data were collected using a structured questionnaire through a 'drop and pick' method. A pilot study was conducted on six Airlines to test the reliability and validity of study tools. The collected data were analyzed both descriptively and inferentially using Statistical Package for Social Sciences (SPSS) computer software Version 24. The study results were presented in statistical frequency distribution tables. The study results revealed that entry behavior, competitive market, bargaining power, and transactional cost all had a statistical and significant positive effect on performance. Moreover, the study showed that strategic alliance practices jointly accounted for approximately 80.82% (R2 = 0.8082) variation in the performance of these local Airline firms in Kenya. The study hence recommended that the management of local Airlines improve on these strategic alliances to improve their performances.

Political uncertainty and stock market liquidity, size, and transaction cost: The role of institutional quality

AbstractUsing panel data of 42 countries from 2001 to 2019, we examine whether political uncertainty (caused by uncertainty about national elections) explains variations in cross‐country liquidity, market size, and transaction cost. We also investigate whether institutional quality moderates the negative effects of political uncertainty on stock market development. We show that political uncertainty reduces stock market size, liquidity, and increases transaction costs. Our results indicate that institutional quality moderates the negative effects of political uncertainty on stock market development. However, we find no effects in emerging markets arising from the high prevalence of weak institutions. We confirm the robustness of our findings using alternative financial development measures and endogeneity. This study enhances our understanding of the salient role of political uncertainty in the development of the stock market, with important implications for market regulators, corporations, and investors.

Supply chain integration, circulation industry development and unified large market---From the perspective of Internet popularization

The construction of a unified big market is the inevitable requirement of China’s continuous deepening of reform, which plays an important role in eliminating the urban-rural gap and promoting the domestic and international double cycle. The key to building a large, unified national market is to promote high-standard connectivity of market facilities, continue to deepen and popularize through the Internet, combine supply chain integration with the development of the circulation industry, reduce institutional transaction costs and explicit costs such as raw materials, labor and logistics, break local protection, curb market segmentation, and update infrastructure. In this way, market transaction costs can be reduced, scale advantages can be leveraged and resource allocation can be optimized.

Time-adjusted transaction costs for energy renovations for single-family house-owners

This study empirically estimated disaggregate market transaction costs facing single-family house-owners when energy renovating their dwelling. Two types of energy renovations are analysed: heat insulation and energy-saving windows. An analytical framework was developed including an adjustment mechanism for time-biases displayed by households. The decision process was modelling in three steps where households can be either latent, potential or actual clients to an energy renovation project. Data was collected by web-based surveys. The transaction costs are estimated based on time assessment, income levels and monetary expenditures occurring in the decision process. The results suggest that the magnitude of the transaction costs can be an important barrier to energy renovations. For energy-saving windows, transaction costs can constitute more than 50% of the investment cost, and almost 24% for heat insulation. The largest potential reduction in the transaction costs is found in the implementation phase.

Contract Duration and the Costs of Market Transactions

The optimal duration of a supply contract balances the costs of re-selecting a supplier against the costs of being matched to an inefficient supplier when the contract lasts too long. I develop a structural model of contract duration that captures this trade-off and provide an empirical strategy for quantifying (unobserved) transaction costs. I estimate the model using federal supply contracts for a standardized product, where suppliers are selected by procurement auctions. The estimated transaction costs are substantially greater than consumer switching costs and a significant portion of total buyer costs. Counterfactuals illustrate the importance of accounting for the duration margin. (JEL D22, D23, D44, D86, H57, L14)

Optimal profit and transaction costs for a production function with variable elasticity of output with resources

The published article examines the influence of non-production (transactional) costs of a multifactorial manufacturing enterprise on the formation of its profit. An economic-mathematical model for calculating the profit of an enterprise is proposed, the production function of which takes into account changes in the values of elasticity for each resource, and production (transformation) and non-production (transactional) costs are also described by an exponential function. The features of the formation of profit volumes in the short-term and long-term periods of the enterprise's work are studied. A variant of the calculation model of the maximum possible profit, ignoring the role of transaction costs, and a variant of the calculation model of optimal profit, taking into account the influence of transaction costs, are obtained. The source of transaction costs is the costs of market transactions, for the implementation of which it is necessary to find a subject interested in concluding a transaction, conduct preliminary negotiations with him, prepare a contract and conditions for its implementation, etc. The resources and costs required for all this are the essence of the transaction costs of concluding a deal. It is shown that when calculating the volume of emerging profit, it is necessary to maximize not only the profit function itself, but also the transaction utility function. Numerical analysis of the results of calculations shows the unattainability of the maximum possible values of profit, since in practice the management of the enterprise maximizes not the profit itself, but its utility, expressed as the corresponding transactional function.

Биржевые рынки энергоресурсов в России: защита от шоков или монополий?

The development of commodity exchanges is promoted as one of main competition policy directions in Russian energy markets. Exchange trade has a number of procompetitive effects based on reduction of market transaction costs, as well as on prevention of price manipulations. Those effects in their turn contribute to less painful coping with economic shocks and imbalances, which acquires a special importance amid crisis circumstances of 2020 and 2022. However, exchange trade is connected with its own risks and constraints, in particular under the shortage of liquidity, excessive market concentration or abusive practices supported by a weak regulation. This paper contains the empirical analysis of the dependence between structural and pricing indicators in the markets for natural gas and diesel fuel on Saint-Petersburg International Mercantile Exchange. It is discovered that the excessive concentration in natural gas markets negatively affects price stability and market liquidity – development of this trading segment requires more active involvement of independent suppliers. At the same time, this involvement should be realized not by directive measures but by additional opportunities of exchange trade. This dependence is more complicated in markets for diesel fuel – it is necessary to continue the policy of supporting the volume of liquidity while increasing the attractiveness of the trading conditions for different groups of market participants. As such, there should be different policies to promote commodity exchanges developments in different markets, and those policies may change follow market evolution. At the same time, discretionary anti-crisis measures should be avoided, if they increase uncertainty on commodity exchanges and lower incentives for their development.

Trading strategy model based on LSTM neural network and Extreme Value-Dynamic programming

The advantage of a trading strategy is that it can help us identify potential trading opportunities. Traders need to use the best investment strategy to take into account factors such as market volatility and transaction costs, so as to get the maximum benefit on the target date. this paper uses LSTM neural network to make predictions. The predicted value is the price of gold and bitcoin five days after the investment date, the model fits well. By analyzing the problem, the goal is to find the optimal value, which can be regarded as a multi-stage decision-making process optimization problem. Therefore, this paper selects the Extreme value-DP model for planning and decision-making, and uses the maximum (minimum) value to evaluate the strategy.

Optimal bidding in hourly and quarter-hourly electricity price auctions: Trading large volumes of power with market impact and transaction costs

This paper addresses the question of how much to bid to maximize the profit when trading in two electricity markets: the hourly Day-Ahead Auction and the quarter-hourly Intraday Auction. For optimal coordinated bidding many price scenarios are examined, the own non-linear market impact is estimated by considering empirical supply and demand curves, and a number of trading strategies is used. Additionally, we provide theoretical results for risk neutral agents. The application study is conducted using the German market data, but the presented methods can be easily utilized with other two consecutive auctions. This paper contributes to the existing literature by evaluating the costs of electricity trading, i.e. the price impact and the transaction costs. The empirical results for the German EPEX market show that it is far more profitable to minimize the price impact rather than maximize the arbitrage.