Price Setting Mechanisms Research Articles

Governing the transition of socio-technical systems: A case study of the development of smart grids in Korea

This paper examines the motivations, processes and outcomes of the development of smart grids in South Korea through the perspectives of governance and innovation systems. Drawing on desktop research and semi-structured interviews, this paper has two major findings. First, the development of smart grids in Korea has been shaped by various factors including macroeconomic policy, the role of the government, and experimentation. The complex interactions between these factors at the landscape, regime and niche levels has impacted on the development of smart grids. Second, while Korea's government-led approach has its strengths in driving change, it has also exposed weaknesses in the country's ability to mobilise the private sector and consumer participation. Major obstacles including partial electricity market reform and public distrust exist. A systemic perspective is needed for policy in order to accommodate the changes required for smart grid development. Regulatory reforms, particularly price-setting mechanisms, and consumer engagement are priority areas for policy change.

Trend Inflation and Firms Price‐Setting: RotembergVersusCalvo

We compare the Calvo and Rotemberg price-setting mechanisms in a New Keynesian model with trend inflation. We show that: the long-run relationship between inflation and output is positive in Rotemberg and negative in Calvo; the dynamics of the two models differ even to a first-order approximation; positive trend inflation enlarges the determinacy region in the Rotemberg model, whereas it shrinks it in the Calvo model; the responses of output and inflation to technology shocks are amplified by trend inflation in Calvo, whereas they are dampened in Rotemberg; the two models imply differing non-linear adjustments after a disinflation.

Industry evolution, rational agents and the transition to sustainable electricity production

Guiding a transition to low carbon electricity requires a good understanding of the substitution of old by new technologies in the electricity industry. With the aim of explaining historical change from coal to gas in the British electricity industry, we develop a formal model of technological change, where energy technologies diffuse through the construction of new power plants. We considered two model versions: with rational and boundedly rational investors. In each model version, we look at the causal relations between price and output setting mechanisms, fuel and labour use, and investment decisions for different institutional arrangements. We quantify model parameters on data for the United Kingdom. We find that the version of the model with rational investors is capable of replicating well core features of UK electricity history. This includes a rapid diffusion of gas in electricity production, the evolution of the average size of newly installed plants, and a high percentage of electricity sales covered by (forward) contracts-for-difference. In this model setting, nuclear and renewable energies have no chance to diffuse on the market. In the version of the model with boundedly rational investors, nuclear power typically dominates electricity production. We discuss implications of our modelling results for making a transition to low carbon electricity in the future.

Future challenges for transport infrastructure pricing in PPP arrangements

In this paper we report the conclusion of a research project dedicated to pricing regimes in public-private partnership contracts for the provision of transport infrastructure ( Macário et al., 2009). Several elements have been brought to the bulk of knowledge that supports the design and implementation of public-private partnership in the transport sector. These developments have been achieved in the following domain: • Understand difficulties of price setting within the PPP environment, given the potential conflict of interest among the different parties engaged, go beyond the discussion of first best versus second-best price setting mechanisms. • Understand the role of government and regulators in the performance of a PPP. • Translate the issue of asymmetries of information between parties into a risk taking language. • Devise alternative contractual designs that will enable competitive price setting. • Understand that a structural element is missing to conciliate the views of the different stakeholders over a PPP: a bridge between infrastructure costs and charges. The objective of this paper is to overview the main challenges ahead of transport infrastructure pricing, considering the current and likely future policies as well as the field constraints. Moreover, a proposal is formulated to overcome some of the current pitfalls associated to transport infrastructure pricing.

Development and implementation of health technology assessment in Argentina: Two steps forward and one step back

The objectives of this study are to review the financing and organization of the Argentine healthcare system, the licensing and drug price setting mechanisms, the benefit packages and coverage policies of pharmaceuticals and other medical technologies, as well as the development of HTA in Argentina, and the role of the Institute of Clinical Effectiveness and Health Policy (IECS) as an HTA agency. Finally, the perspectives and future of HTA as a tool to make resource-allocation decisions and priority setting in Argentina is discussed. The study is a discussion/review based largely on the experiences of the authors, but supported by available literature. Argentina is an upper-middle income country with major healthcare problems related to both equity and efficiency. Its healthcare system consists of a multitier system divided in three large sectors: public, social security, and private, where the federal Ministry of Health has a rather limited role in national health policy stewardship. Many of Argentina's shortcomings are due in part to its pluralistic and fragmented healthcare system. In the past decade, Argentina, like many other Latin American countries, has undergone a profound reform of its healthcare system. Whereas some of the objectives of the reforms were specific to each country, a common issue among all of them was to establish a mechanism that ensured a more efficient allocation of scarce resources, and guaranteed a wider provision of healthcare services on the basis of the local population needs and equity. Although some signals from the national government and congress show that there are plans to formally incorporate HTA to inform reimbursement policies, these signals are still very weak. Paradoxically, even though Argentina was the first country in the region to require formal health economic evidence for the adoption of technologies into the mandatory benefit package of the social security, this "fourth hurdle" is no longer required. Nevertheless, there is an increasing interest and demand for a more explicit and transparent resource-allocation process that include HTA as a formal tool to inform decision making, in most of Argentine healthcare stakeholders. In conclusion, what is needed in Argentina is a clear political will to push forward for a national agency of HTA that, similar to other developed countries, advance the regulation on the adoption of new health technologies to improve not only technical or allocative efficiency, but also health equity. Until this milestone is accomplished, the HTA production and use to inform healthcare coverage policies will continue to mirror the current fragmented healthcare system.

Supply Chain Management and Network Distribution of Safal Market

Supply Chain Management consists of all parties involved directly or indirectly in fulfilling a customer request. The supply chain not only includes the producers and suppliers but also transporters, warehouses, retailers, and customer themselves within each organization such as producer, the supply chain includes all function involved in receiving and filling consumer request. Improving the post harvest management means an overall improvement in the per unit productivity. In last one decade various marketing models have been initiated, Mother Dairy cooperatives in fresh fruits and vegetables under the name of SAFAL, further their alternative whole sale market-SAFAL Market. The traditional Indian markets have a non-existent infrastructure of packing, grading, sorting and cold storages. The commission agents and traders dominate the supply chain and are the major price setters, thus most of the times farmers are dependent on them for credit. Farmers are not aware of the price setting mechanisms as the system is not transparent and thus don't have any incentive to produce efficiently. The National Dairy Development Board (NDDB) has started the Fruit and Vegetable Unit of SAFAL at Delhi, which is one of the first fruit and vegetable retail chains set up as a part of the Mother Dairy Foods Processing Ltd. The retail unit provided a direct link between fruit and vegetable growers and consumers. The other initiative was a fruit processing Plant of SAFAL at Mumbai, a 100 per cent export-oriented unit, which capitalizes NDDB's food processing strength. NDDB has set up an alternate system of wholesale markets in Bangalore as a pilot project. The initiative is named as SAFAL Market and is initiated to fine-tune horticultural growth in India, by a shift in their earlier retail chain model to a wholesale market concept.This paper addresses the Supply Chain Management as it concerns with 'integration' of firms in the face of coordinating materials and information flows within a procurement-production-distribution network in order to attain the Safal Market goals with special reference to fruits and vegetables.

Supply Chain Management and Network Distribution of Safal Market

Supply Chain Management consists of all parties involved directly or indirectly in fulfilling a customer request. The supply chain not only includes the producers and suppliers but also transporters, warehouses, retailers, and customer themselves within each organization such as producer, the supply chain includes all function involved in receiving and filling consumer request. Improving the post harvest management means an overall improvement in the per unit productivity. In last one decade various marketing models have been initiated, Mother Dairy cooperatives in fresh fruits and vegetables under the name of SAFAL, further their alternative whole sale market-SAFAL Market. The traditional Indian markets have a non-existent infrastructure of packing, grading, sorting and cold storages. The commission agents and traders dominate the supply chain and are the major price setters, thus most of the times farmers are dependent on them for credit. Farmers are not aware of the price setting mechanisms as the system is not transparent and thus don't have any incentive to produce efficiently. The National Dairy Development Board (NDDB) has started the Fruit and Vegetable Unit of SAFAL at Delhi, which is one of the first fruit and vegetable retail chains set up as a part of the Mother Dairy Foods Processing Ltd. The retail unit provided a direct link between fruit and vegetable growers and consumers. The other initiative was a fruit processing Plant of SAFAL at Mumbai, a 100 per cent export-oriented unit, which capitalizes NDDB's food processing strength. NDDB has set up an alternate system of wholesale markets in Bangalore as a pilot project. The initiative is named as SAFAL Market and is initiated to fine-tune horticultural growth in India, by a shift in their earlier retail chain model to a wholesale market concept.This paper addresses the Supply Chain Management as it concerns with 'integration' of firms in the face of coordinating materials and information flows within a procurement-production-distribution network in order to attain the Safal Market goals with special reference to fruits and vegetables.

What if the Federal Government Negotiated Pharmaceutical Prices for Seniors? An Estimate of National Savings

The government is prohibited from directly negotiating drug prices for Medicare Part D, resulting in substantial policy debate. However, the government has an established mechanism for setting prices with pharmaceutical manufacturers for certain other federal programs--the Federal Supply Schedule (FSS). To estimate how much could be saved nationwide if prices equivalent to the 2006 FSS were achieved for the top 200 drug formulations dispensed to seniors. Cross-sectional analysis of drug utilization patterns and costs from the nationally representative Medical Expenditure Panel Surveys (MEPS), 2003-2004, and the 2006 FSS. Seniors who filled a prescription for any of these common drugs (n = 6,135 individuals). Prescription expenditures were obtained from MEPS, and a price/unit was calculated in 2006 dollars. This price/unit was compared to the 2006 FSS, and a savings/unit was calculated and summed across the observed units dispensed in MEPS. The potential annual savings with FSS prices would be $21.9 billion [95% confidence interval (CI), $21.1 billion to $22.8 billion]. If FSS prices were substituted for only the top ten drugs, the annual savings would be $5.9 billion (95% CI, $5.7 billion, $6.1 billion). Extension of existing price setting mechanisms to Medicare could save tens of billions of dollars if prices similar to those already achieved by other federal programs could be reached. Whether or not this is a political or economic possibility, the magnitude of these savings cannot be ignored.

Price adjustment under the table: Evidence on efficiency-enhancing corruption

Based on first-hand account, this paper offers evidence on price setting and price adjustment mechanisms that were illegally employed under the Soviet planning and rationing regime. The evidence is anecdotal, and is based on personal experience during the years 1960–1971 in the Republic of Georgia. The description of the social organization of the black markets and other illegal economic activities that I offer depicts the creative and sophisticated ways that were used to confront the shortages created by the inefficient centrally-planned command economic price system with its distorted relative prices. The evidence offers a glimpse of quite explicit micro-level evidence on various types of behavior and corruption that were common in Georgia. Rent-seeking behavior, however, led to emergence of remarkably well-functioning and efficiency-enhancing black markets. The evidence, thus, underscores once again the role of incentives in a rent-seeking society.

Measuring the Importance of the Uniform Nonsynchronization Hypothesis

In this paper we critically reappraise some measures of the importance of time-dependent price setting rules and propose an alternative way to gauge the significance of this type of price setting behaviour. The merits of the proposed measure are highlighted in an application using micro-data. Our results suggest that a large proportion of price trajectories may be compatible with simple time-dependent price setting mechanisms but the strength of this evidence very much depends on the way that is used to evaluate the importance of this type of behaviour.

An evolutionary game-theoretic model of network revenue management in oligopolistic competition

This paper articulates a dynamic model of price-based network revenue management, where a set of service providers are involved in oligopolistic competition that is equilibrium tending. The service providers are price setters whose price setting strategies induce time lagged impacts on demand. The price setting mechanisms of these providers resemble the replicator dynamics that are common to evolutionary games. This paper shows that the resulting Cournot—Nash game takes the form of a differential variational inequality. Existence results are provided and an abstract numerical example is solved via a fixed point algorithm that may be implemented with off-the-shelf software. Suggested extensions of the model are also provided.

Emerging Pricing Strategies on the Web: Lessons from the Airline Industry

The advent of the digital economy has provided unprecedented opportunities for suppliers and intermediaries to experiment with new pricing strategies. New information technologies not only enable businesses to charge flexible prices on the Web, but also allow for new price setting mechanisms in which consumers specify their interests and requirements. Economic appropriateness, technical feasibility, and purposes of such pricing strategies depend mainly on product characteristics, customer groups, sales volume, and eventually the division of labour and power among suppliers, intermediaries, and consumers. This paper compares online and offline pricing strategies. It puts a particular focus on airline ticket sales based in a setting of structural changes in the airline industry and changing customer behaviour. It takes a critical look at predictions about the proliferation and success of flexible pricing schemes that were made at the end of the 1990s. Interpretative analysis and empirical evidence of Web-ba...

The Role of Consumer Countries in Determining International Oil Prices

Since 1987 international oil trading has been conducted within the framework of a free and competitive market. However, whenever tensions push up oil prices, concerns become manifest. The Organisation of Petroleum‐Exporting Countries (OPEC) is singled out as an economic agent, which tends to hinder competitive play for its own profit, using a concerted policy of supply limitation to impose excessively high prices to its own advantage. We find these concerns unjustified. On the contrary, it seems that the main oil consumer countries give themselves the ability to influence oil prices, raising prices to levels, which are higher than they would be if competition mechanisms operated without asymmetry between market agents. Consumer countries limit their dependence on oil imports by implementing a heavy fiscal regime: high prices hold back demand growth, allow survival of domestic producers, whose oil production would otherwise be unprofitable, and favour development of oil‐substituting energy sources. This policy of heavy domestic taxation of oil products is all the more acceptable for consumer countries because it contributes significantly to maintaining the balance of their public finances.We will present three main types of analysis of oil price setting mechanisms: consensus of analyses for the short and long term; analyses dealing with concentration of supply on the market as the main factor determining oil prices; and analyses in terms of competitive forces.

Price and niche wars in a free-market economy of software agents.

One scenario of the future of computation populates the Internet with vast numbers of software agents providing, trading, and using a rich variety of information goods and services in an open, free-market economy. An essential task in such an economy is the retailing or brokering of information: gathering it from the right producers and distributing it to the right consumers. This article investigates one crucial aspect of brokers' dynamical behavior, their price-setting mechanisms, in the context of a simple information-filtering economy. We consider only the simplest cases in which a broker sets its price and product parameters based solely on the system's current state, without explicit prediction of the future. Analytical and numerical results show that the system's dynamical behavior in such "myopic" cases is generally an unending cycle of disastrous competitive "wars" in price/product space. These in turn are directly attributable to the existence of multiple peaks in the brokers' profitability landscapes, a feature whose generality is likely to extend far beyond our model.

Macroeconomic Policy in a World Economy: From Econometric Design to Practical Operation

This monograph articulates John Taylor's contributions to macroeconometric policy evaluation and design since the late 1970s. Yet, the book is not simply a collection of his previously published articles; instead, it is a well-organized premier for the new-Keynesian approach to macroeconomics. The author attempts to merge the fundamentals of the Keynesian tradition in modeling with the theoretical developments since the rational expectations revolution. He accomplishes this objective by demonstrating the feasibility of using a prototype model tractable by individual researchers, as opposed to large-scale models, to deliver scientific answers to practical questions in macroeconomic policymaking. Taylor's pedagogy involves building three frameworks with varying degrees of complexity and computational difficulty to reflect the issues addressed. In search of a world-economy model in Chapter 3, he progressively develops a preliminary stylized two-country model and then an intermediate VARMA model of five linear equations for the U.S. economy. For each model, he carefully demonstrates model construction, its estimation technique, simulation results, and provides policy analysis. Such treatments highlight the significance of different modeling strategies: modeling and computational costs versus econometric performance. For instance, while the VAR estimation method is feasible of estimating the closed-economy model, the multicountry model can only be estimated using the single equation FIML method. Nevertheless, even Taylor's workhorse-the world-economy model with ninety-eight stochastic equations for the G-7 countries-is still conceptually manageable. The models are prototypical of the new Keynesian approach. Their main features consist of rational expectations, staggered wageand price-determination mechanisms, and forward-looking consumer behavior. This framework contributes to the dynamics of long-run neutrality (monetary policy) as well as complete crowding out (fiscal policy) and persistent short-run fluctuations with a trade-off between the variances of inflation and real output. The treatments in the international sector include the Mundell/Flemming theory of perfect capital mobility as well as time-varying risk premia in foreign exchange and capital markets. In line with the recent developments in the time consistency and policy credibility theories, Taylor redefines policy rule as a well-defined contingency plan in a dynamic optimization problem [p. 5], rather than the constant money growth rule a la Friedman. In this sense, government policy follows a systematic feedback rule and is no longer exogenous. For policy evaluation, Taylor focuses on the variability of output and prices, rather than their levels as customarily considered in the literature. Estimation of the multicountry model reveals varying extents of wage and price synchronizations across different countries, with the highest in Japan and the lowest in the U.S. Such cross-sectional observations play an important role in explaining their different degrees of cyclical fluctuations and in determining optimal domestic policy rules. Moreover, since policy effects vary across countries, policy evaluation can not be addressed theoretically. Compared with other large-scale international models, such as LINK, the Federal Reserve's MCM, and the International Money Fund's MULTIMOD, Taylor's model is parsimony yet capable of delivering answers to many current issues. The entire Chapter 4 is devoted to the analysis of the world-economy model's structural residuals. The variance-covariance matrix of the shocks not only shows their different volatilities over different sectors and different countries, but also a high degree of correlation among these shocks. However, the model is estimated over the period 1972-86, which raises the issue of robustness in Taylor's conclusions. First, the global flexible exchange rate regime began in the early 1970s, rendering it inappropriate to analyze fixed versus flexible exchange rates in the following chapter. Second, structural changes in some of the equations are likely to occur over this turbulent period. Examples for the U.S. include changes in the wageand pricesetting mechanisms and in the monetary policy regime, and deregulation in the financial markets within that period. In Chapter 5, Taylor compares the effects of unanticipated versus anticipated monetary and fiscal policies. The anticipated policy is simulated with a two-year learning period between a policy announcement and actual policy implementation. In the short run, unanticipated policies result in higher volatility in real output and prices than anticipated actions. Policy effects are also compared over the flexible and fixed exchange rate systems. Transmission of policy effects abroad is more significant under fixed exchange rates when money supplies and interest rates are manipulated to keep exchange rates pegged. Chapters 6 and 7 on policy design and implementation, respectively, form the core of the book. In policy design, the author sequentially evaluates the exchange rate systems, the prospect of international

Notes on Agroecosystem Complexity: Chaotic Price and Production Trajectories Deducible from Simple One-Dimensional Maps

ABSTRACT The process of agricultural production is treated as a discrete process and modelled with a nonlinear cobweb recursion relation, which is a composite of production and price setting mechanisms. The various processes that result in ecological exhaustion enter the model as a nonlinearity in the production function. Under these conditions it is predicted that the trajectories of prices and production through time will generate chaotic, and thus unpredictable, patterns.