Price Concessions Research Articles

Should Global Health be Tailored Toward the Rich? Altruism and Efficient R&D for Neglected Diseases.

We analyze the problem of incentivizing research and development (R&D) into developing world disease from an economic efficiency perspective. We view the problem as how to best promote R&D into goods with positive external effects in the sense that medicines that directly affect the health of the poor also indirectly affect the utility of the altruistic "rich." We demonstrate why existing policy proposals - such as price concessions by manufacturers - adversely impact the poor by placing the burden of R&D only on innovators rather than all altruists in the rich world. We offer policy solutions that are based on economic efficiency and therefore rely on a broad sense of how the world values the treatment of developing world disease. We estimate that global altruism toward those with malaria is, at a minimum, valued between $835 million and $2.4 billion annually and for HIV/AIDS, between $9.1 billion and $26.6 billion annually. We argue that future policies toward neglected diseases need to better incorporate how efficient R&D meets the need of this global altruism.

Beyond Offers and Counteroffers: The Impact of Interaction Time and Negotiator Job Satisfaction on Subjective Outcomes in Negotiation

In this study, we examined real‐world sales negotiations by collecting data in collaboration with a large Taiwanese eyeglasses company. We found, as has been established previously, that higher first offers predict higher company profits and that the impact of high opening offers can be muted by greater customer awareness of prices at other stores. When we investigated a more qualitative outcome, customers’ perceptions of service quality, a different set of predictors emerged. Our results indicate that salespeople who spent more time introducing the products and services were perceived by the customers as providing higher service quality, but this effect only occurred for those salespeople who reported high levels of job satisfaction. Also, price reduction by salespeople did not improve customer satisfaction. Our results indicate that customer satisfaction does not require negotiated price concessions, but rather depends on extensive interaction with salespeople who are happy in their work. This is the first study to show that negotiator job satisfaction can affect important negotiation outcomes.

Trade Execution Skill by Floor Traders in Futures Markets: A Reexamination

This paper corrects the bias in the method by Manaster and Mann (1996) and Coval and Shumway (2001) in testing for trade execution skill by professional floor traders. An analysis of transaction data from four commodity markets at the Chicago Mercantile Exchange finds no evidence that proprietary traders make price concessions in adjusting their inventory, which contradicts pure inventory models but is consistent with the information models of market makers. Furthermore, limited evidences are found that dual trading has a positive effect on a trader’s execution skill as predicted by Fishman and Longstaff (1992).

Limit order books and trade informativeness

In the microstructure literature, information asymmetry is an important determinant of market liquidity. The classic setting is that uninformed dedicated liquidity suppliers charge price concessions when incoming market orders are likely to be informationally motivated. In limit order book (LOB) markets, however, this relationship is less clear, as market participants can switch roles, and freely choose to immediately demand or patiently supply liquidity by submitting either market or limit orders. We study the importance of information asymmetry in LOBs based on a recent sample of 30 German Deutscher Aktienindex (DAX) stocks. We find that Hasbrouck's (1991) measure of trade informativeness Granger causes book liquidity, in particular that required to fill large market orders. Picking-off risk due to public news-induced volatility is more important for top-of-the book liquidity supply. In our multivariate analysis, we control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity.

Does the Secondary Loan Market Reduce Borrowing Costs?

We show that lenders make price concessions for the right to resell loans, and reveal a strong countervailing association between the ex ante probability of loan resale and the initial loan spreads. We disentangle the side effects (reduced monitoring) from the benefits (enhanced liquidity) brought by the secondary loan resales. The average net impact of simultaneously reducing the probability of the presence of resale constraint and raising the probability of resale across the full sample is to lower spreads by 14 basis points. On balance, the secondary loan market provides clear benefits to issuers of debt.

Entry into 3G mobile telecommunications markets

National regulatory authorities (NRAs) attempt to encourage participation in spectrum assignments by enhancing entrants’ likelihood of success. The question this study addresses is: can NRA policy tools really affect the probability an entrant wins a 3G spectrum licence? In particular, the econometric analysis allows consideration of whether licence concession or mode of assignment encourages entry. The study finds that auction assignment processes only slightly increase the probability of entry, whilst price and quantity concessions have no impact.

Countervailing Power and Chain Stores

The countervailing power of large buyers subdues the market power of sellers, but price concessions won by large buyers in upstream markets may or may not translate into lower prices downstream. This paper presents a model in which upstream price concessions leads to lower downstream prices. In this model, the countervailing power of a large retail chain store enables the firm to play one large supplier off against another to win lower prices. An indirect effect of these interactions is that small retailers also pay lower prices, although not as low as the chain. To the extent that the chain’s countervailing power stems from its multi-market operations, and local retail markets remain competitive, the chain’s countervailing power translates into lower retail prices. In fact the retail-price-restraining effect of the chain is greater than the effect produced when upstream competition is enhanced by the entry of an additional seller.

Pricing and promotion strategies of an online shop based on customer segmentation and multiple objective decision making

The advent of the Internet and web technologies has enabled the prosperity of virtual stores, which greatly reduce customers’ search costs and retailers’ overhead. However, the furious competition between online shops makes it difficult for them to generate profits. This study attempts to establish pricing and promotion strategies for online shops to enhance their profitability. The pricing decision is based on the concept of customer relationship management, where a greater margin of price concession is given to customers who are more valuable to the shop. The process of our approach is: clustering customers into different classes based on their RFM data, computing and presenting the list prices of products to customers according to their classes, allowing customers to bargain over the price and offering conceded prices which are computed based on customer classes and a multi-objective decision making model, and finally providing promotion options to customers to reinforce their purchase inclination. The proposed approach is implemented at an online shop of a computer peripherals retailer. Transaction data before and after the implementation are collected and compared to assess the performance of the proposed approach.

The Medium-Term Impact of Medicare Part D on Pharmaceutical Prices

Medicare Part D began coverage of prescription drugs in 2006. Using data from the first year of the program we found that Part D reduced pharmaceutical prices for Medicare recipients, with these effects driven by enrollees previously without drug coverage. In this paper we extend our analysis through 2009, the fourth year of the program, to investigate whether plans continued to extract price concessions in return for favorable formulary placement, or if consumer inertia or other factors caused prices to bounce back after their initial decline. We find price declines persisted through at least the third year of the program.

Limit Order Books and Trade Informativeness

In the microstructure literature, information asymmetry is an important determinant of market liquidity. The classic setting is that uninformed dedicated liquidity suppliers charge price concessions when incoming market orders are likely to be informationally motivated. In limit order book markets, however, this relationship is less clear, as market participants can switch roles, and freely choose to immediately demand or patiently supply liquidity by submitting either market or limit orders. We study the importance of information asymmetry in limit order books based on a recent sample of thirty German DAX stocks. We find that \cpos{hasbrouck91a} measure of trade informativeness Granger-causes book liquidity, in particular that required to fill large market orders. Picking-off risk due to public news induced volatility is more important for top-of-the book liquidity supply. In our multivariate analysis we control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity.

INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS*

This paper revisits third‐degree price discrimination when input buyers serve multiple product markets. Such circumstances are prevalent since buyers often use the same input to produce different outputs, and even homogenous outputs are routinely sold through different locations. The typical view is that price discrimination stifles efficiency (and welfare) by resulting in price concessions to less efficient firms. When buyers serve multiple markets, price discrimination leads to price breaks for firms in markets with lower demand. When lower demand markets also have less competition, price discrimination can provide welfare gains by shifting output to less competitive markets.

The Optimal Portfolio Weight for Real Estate with Liquidity Risk and Uncertainty Aversion

In this paper we investigate the portfolio implications of liquidity costs and uncertainty aversion across asset classes. In many cases, financial securities such as equities trade in active markets in which equity owners can liquidate their holdings quickly and with little price concession. In contrast, real assets, such as commercial real estate, may take a substantial amount of time to sell and entail significant transactions costs. For this we focus on literature that considers the impact of uncertainty (as opposed to risk) on portfolio choice (Garlappi, Uppal, and Wang, RFS 2007), and extend this to include a measure of the liquidation costs of assets. In particular, our paper examines the optimal relative weight of real estate in a portfolio when both liquidity costs and the uncertainty regarding sample inputs are considered. We find large increases in the ex-post Sharpe ratio result when liquidity costs and uncertainty aversion are incorporated in portfolio selection relative to a naive portfolio that ignores liquidity costs and uncertainty.

“Milking” the Consumer?

In the early 1930s, Ontario’s milk industry was crippled by a series of “price wars” that undermined the profit-making ability of both milk producers and distributors. The province responded to this untenable situation by creating the Ontario Milk Control Board (MCB), which eventually stabilized the industry through licensing, bonding, and fixed price agreements. Congruent to this stabilization was the gradual inflation of consumer milk prices—much to the angst of a consuming public that found it difficult to subsist. Communists and housewives alike protested in Ontario cities. Alternative, sometimes radical, solutions were proposed. Consumer advocates additionally sought a pure and nutritious product for their undernourished children. Debates over pasteurization, in particular, raged alongside boycotts over cost. Yet, this emerging consumer movement attracted little government support and enjoyed only marginal success. Producers and dairies successfully mobilized the MCB on their behalf, whereas consumers failed to achieve price concessions and were often constrained by the state.

Steering sales reps through cost information: An investigation into the black box of cognitive references and negotiation behavior

As previous research demonstrates, few firms provide full pricing authority to their sales representatives (in the following: sales reps), and those sales representatives who do have full pricing authority may offer too many price concessions in their effort to close the sale. Thus, many sales managers lose the opportunity to use salespeople's superior customer knowledge to exploit their customers' willingness to pay. This study investigates how a company might steer sales reps during price negotiations while still giving them full pricing authority. The proposed instrument is simple to understand, easy to implement, fairly inexpensive, and effective; it posits that the kind of cost information that sales reps receive affects both their cognitive references and their negotiation behavior, which in turn affect negotiated prices. Electronically mediated negotiations in an experimental setting with 119 student dyads ( Study 1), as well as replications of the findings using 41 dyads of key account managers ( Study 2), indicate that undifferentiated cost information (full costs without information on direct costs) leads to higher reference prices (reservation price, target price, and first offer), as well as stronger attacking behavior and weaker coordinating behavior. These effects yield higher sales prices, and therefore more profit for the company. These results offer sales managers valuable insights into the “black box” of negotiations, which may be particularly helpful for steering sales reps in a situation in which they have full pricing authority.

A dynamic model for advertising and pricing competition between national and store brands

Abstract We study the relationship between the pricing and advertising decisions in a channel where a national brand is competing with a private label. We consider a differential game that incorporates the carryover effects of brand advertising over time for both the manufacturer and the retailer and we account for the complementary and competitive roles of advertising. Analysis of the obtained equilibrium Markov strategies shows that the relationship between advertising and pricing decisions in the channel depends mainly on the nature of the advertising effects. In particular, the manufacturer reacts to higher competitive retailer’s advertising levels by offering price concessions and limiting his advertising expenditures. The retailer’s optimal reaction to competitive advertising effects in the channel depends on two factors: (1) the price competition level between the store and the national brands and (2) the strength of the competitive advertising effects. For example, in case of intense price competition between the two brands combined with a strong manufacturer’s competitive advertising effect, the retailer should lower both the store and the national brands’ prices as a reaction to higher manufacturer’s advertising levels. For the retailer, the main advantage from boosting his competitive advertising investments seems to be driven by increased revenues from the private label. The retailer should however limit his investments in advertising if the latter generates considerable competitive effects on the national brand’s sales.

Clientele Change, Persistent Liquidity Shock, and Bond Return Reversals after Rating Downgrades

Analysis of the actual holdings of bond mutual funds and transaction data of insurance companies during the period between 2003 and 2007 confirms a clientele change when a corporate bond is initially downgraded to ?junk? status. Investment-grade bond funds and insurance companies are forced to sell to meet their investment constraints, creating a persistent price concession of around 2%; prices recover partially after almost three months. High-yield bond funds and hedge funds specializing in distressed securities benefit from providing liquidity during these downgrade events. The clientele change is greater for bonds held by more constrained mutual funds. We do not find a persistent liquidity shock around similar downgrades when the threshold between investment grade and speculative grade is not crossed.

Interorganizational Relationships and Bidding Behavior in Industrial Online Reverse Auctions

The authors model (1) the impact of the supplier's relationship propensity before the auction on the supplier's bidding aggressiveness in the auction (in terms of the number of bids it submits, the rate at which the bids are submitted, and the price concessions offered) and (2) the impact of bidding behaviors in the auction on the buyer–supplier relationship after auction through longitudinal survey data from 12 online reverse auctions across various product categories. The results suggest that incumbency, many bidders, and a willingness to make specific investments lead to less aggressive bidding, whereas the total number of bids from competing suppliers increases aggressiveness. In turn, aggressive bidding behavior reduces suppliers' disposition toward developing a relationship with the buyer and sours incumbent satisfaction with the relationship. Finally, auctions that are longer in duration can improve the relationship but may risk bidding competition. Collectively, the results suggest that pricing and relationships are intertwined and traded off against each other in complex ways and that the auction does not operate in isolation of key organizational variables.

The Law and Economics of Price Discrimination in Modern Economies: Time for Reconciliation?

This paper examines the forms, goals, and results of price discrimination. It reviews various economic analyses and critiques of the three Pigovian types of price discrimination. It observes that economists' traditional concern with aggregate welfare has not, until recently, been accompanied by a similar concern by lawyers. Until the late twentieth century lawyers tended to focus on fairness instead. These different concerns have impeded mutual understanding, as have the various meanings that lawyers and economists have attributed to such basic terms as monopoly power, market power and competition in the price discrimination context.The paper examines the principal laws of the United States and the European Union that deal with price discrimination, focusing especially on the Robinson-Patman Act and Article 82(c) of the Treaty Establishing the European Union. The paper compares the operation of these two provisions, finding superficial resemblances but significant differences in practice. While the Robinson-Patman Act was designed to prevent powerful buyers from forcing price concessions from often weak producers to the detriment of small buyers, enforcement of Article 82(c) is directed differently. Although the language of Article 82(c) suggests that it is designed to protect purchasers-for-resale from discrimination by their suppliers, the European Commission employs Article 82(c) to protect competitors from aggressive pricing by dominant (generally producer) firms. The paper also examines the developing law on loyalty rebates on both sides of the Atlantic, again finding that the approaches of the two jurisdictions differ significantly, at least as exemplified by the most recent cases. It distinguishes between loyalty rebates offered by the seller of a single product and those offered by a multi-product seller. The paper's main message is that price discrimination is an essential element in an effectively competitive economy and should be treated that way under the law.

Supplier price concessions: A longitudinal empirical study

The competitive nature of today’s business-to-business markets requires companies to continually look for ways to reduce costs; one of the easiest of which is to demand price reductions from suppliers. In this research, price reduction demands and the corresponding concessions given by 238 suppliers to the six major North American Automotive original equipment manufacturers during 2001–2007 are analyzed utilizing a simultaneous equation model. The three stage least squares estimates indicate that suppliers are willing to give higher price concessions when buyers align specific interfacing characteristics and processes with their suppliers so that the suppliers perceive greater opportunities for future business and profit. These results provide, for the first time, an understanding of the dynamic nature of the impact of buyer–supplier relational components on supplier price concessions.

Medicare Drug-Price Negotiation Faces Uncertain Future

Back to table of contents Previous article Next article Government NewsFull AccessMedicare Drug-Price Negotiation Faces Uncertain FutureMark MoranMark MoranSearch for more papers by this authorPublished Online:2 Feb 2007https://doi.org/10.1176/pn.42.3.0002The House of Representatives approved a bill last month allowing the federal government to negotiate with pharmaceutical companies over the price of drugs offered in the Medicare Part D prescription drug program.The bill, which was approved by a vote of 255-170, is expected to have a much harder time in the Senate. At press time, APA Director of Government Relations Nicholas Meyers told Psychiatric News, “It does not seem likely that the House bill will pass the Senate without revisions.”He noted that Senate Finance Committee Chair Max Baucus (D-Mont.) has“ expressed concerns about the legislation as it is now written and has called for some compromises.”The bill, the Medicare Prescription Drug Price Negotiation Act of 2007 (HR 4), states that the secretary of Health and Human Services (HHS) “shall negotiate with pharmaceutical manufacturers the prices (including discounts, rebates, and other price concessions) that may be charged to prescription drug plan sponsors and Medicare Advantage organizations for covered Part D drugs for Part D–eligible individuals who are enrolled under a prescription drug plan or under [a Medicare Advantage] plan.”The inability of the government, representing millions of Medicare patients, to negotiate for lower prices has been a source of contention since passage of the Medicare prescription drug program in 2003. Opponents of the legislation claimed then that by prohibiting the government from negotiating over price, it paved the way for a bonanza for the pharmaceutical industry.APA has not taken a position on the bill, though in the run-up to its passage, it continued to advocate for access to psychiatric medications, whatever the outcome of the House vote. In a January 12 letter to House Speaker Nancy Pelosi (D-Calif.) and other House leaders, APA Medical Director James H. Scully Jr., M.D., urged House members to ensure that the legislation“ does not carry the unintended consequence of limiting beneficiary access to important medications.”Meyers told Psychiatric News that the drug-pricing discussions are part of a larger debate about access to care.“Access to the full range of medications psychiatrists use to treat their patients is also critical, which is why we have worked hard with the National Alliance on Mental Illness, Mental Health America, and others to ensure that the Part D implementation did not result in potentially catastrophic interruptions in, or abrupt switching of, psychotropic medications,” he said.He added that Scully's letter was intended to remind House leaders that the government has thus far protected psychiatric drugs in the Medicare prescription drug program and that enactment of drug-negotiation legislation does not change the need for continued protection.“We also recognize that the best medications in the world aren't going to work if patients can't afford them, which is why we joined with other medical specialties and patient groups in actively supporting the Partnership for Prescription Assistance,” Meyers said. “The PPA doesn't solve the drug-pricing debate, but it does bring immediate help to patients who have trouble paying for their medicine.”The Partnership for Prescription Assistance offers a single point of access to more than 475 public and private patient-assistance programs, including more than 150 programs offered by pharmaceutical companies. It is supported by member companies in Pharmaceutical Research and Manufacturers of America (PHRMA) and medical and health care advocacy organizations, including APA.Predictably, the Bush administration and the pharmaceutical industry did not respond favorably to news of the bill's passage.HHS Secretary Mike Leavitt noted in a statement that the Congressional Budget Office had determined that the legislation would not result in lower drug prices.“I am disappointed that a majority of House members discounted the overwhelming success of the Medicare Part D program over the last year and voted to pass HR 4,” Leavitt said. “Despite statements from the nonpartisan Congressional Budget Office and the independent Centers for Medicare and Medicaid Services' actuaries that this legislation would not result in savings, this legislation was hastily adopted without hearings in the House. We hope that the Senate will reflect on the evidence and resist the temptation to undermine a program that is working well for millions of people with Medicare.”The Pharmaceutical Care Management Association, in a statement released after the House action, said passage of the bill “would take the Medicare drug benefit in the wrong direction and potentially shift additional costs to private and public payers, including Medicaid and the Veterans Administration.”The text of HR 4 can be accessed at<http://thomas.loc.gov/cgi-bin/Thomas> by searching on the bill number. Information about the Partnership for Prescription Assistance is posted at<www.pparx.org/Intro.php>.▪ ISSUES NewArchived