Pure Price Research Articles

Growth of Crop-output in Kerala–Is it Real or monetary?

The main feature of the development of agriculture in Kerala in the last five decades is the change in cropping pattern and shift in cultivation, that is, shift in the cultivated area under food grain crops to non-food grain crops and shift in the cultivated area under one non-food grain crop to another non-food grain crop. The growth of agricultural crop output and productivity has been affected by many factors. The sources of output growth like area effect, yield effect and cropping pattern effect have relevance in deciding the programmes of agricultural development and priorities of investment in it. The growth of agricultural output in the state like that of other parts of India is influenced by the gross cropped area, productivity and level of prices. The increase in the agricultural crop output is decomposed into real and monetary components. The real component includes area effect, yield effect, cropping pattern effect and interaction effect. The monetary elements consist of the pure price effect, price yield effect, price cropping pattern effect and total interaction effect. From the analysis of thedecomposition of output growth into real and monetary components of Kerala agriculture in the last five decades, the general conclusions arrived at are: price factor is the major element in determining the relative contribution of different elements to the growth of crop output and the overall growth in the Kerala agriculture is monetary growth in nature rather than real growth.

Joint optimization of ordering and promotional strategies for retailers: Rebates vs. EDLP

Retailers face a complex task in formulating ordering and promotional strategies in today’s business. To help those retailers, this paper aims to investigate the joint optimization of ordering and promotional strategies focusing on the choice between rebates and everyday low price (EDLP). After quantifying consumers’ purchase and redemption decision making, we jointly determine the optimal order quantity, rebate face value, and required redemption effort level for a rebate program. For the EDLP strategy, we jointly optimize the retailers’ order quantity and pricing decisions. Comprehensive numerical studies highlight the main features of the model and provide managerial insights. We find that the price sensitivity and regular undiscounted retail price are among the most influential factors in choosing promotional strategies. Our analysis concludes that this choice is not only a pure pricing strategy but more of a marketing positioning strategy for retailers.

The European Union Emissions Trading System and the Market Stability Reserve: Optimal Dynamic Supply Adjustment

Emissions Trading Systems (ETSs) with fixed caps lack provisions to address systematic imbalances in the supply and demand of permits due to changes in the state of the regulated economy. We propose a mechanism which adjusts the allocation of permits based on the current bank of permits. The mechanism spans the spectrum between a pure quantity instrument and a pure price instrument. We solve the firms’ emissions control problem and obtain an explicit dependency between the key policy stringency parameter – the adjustment rate – and the firms’ abatement and trading strategies. We present an analytical tool for selecting the optimal adjustment rate under both risk-neutrality and risk-aversion, which provides an analytical basis for the regulator’s choice of a responsive ETS policy.

An economic assessment of airport incentive regulation

There has been a gradual trend towards incentive regulation of airports since the privatization of BAA in 1986. Airports are price capped in several countries belonging to the European Union, as well as elsewhere, notably India. However, most of the price caps are not a pure price cap in which the X-factor is set independently of the cost of the regulated airport. Typically, hybrid price caps are used and combined with sometimes complex mechanisms like sliding scales, quality incentives and investment obligations, such that the incentive structures may become distorted. We provide an overview of the changes in the governance structure of airports as a result of privatization, analyze how far the regulatory institutions obey the principles of ‘good’ regulation, such as fairness and transparency, and investigate the performance of the new regulation in terms of allocative efficiency by reviewing benchmarking studies. Finally, we assess the impact of incentive regulation on productive efficiency using data envelopment analysis and second stage regression, which suggests that incentive regulation is superior to cost plus.

PRICING REGULATIONS AND NETWORK TECHNOLOGY INVESTMENTS: A RETROSPECTIVE EVALUATION

This article evaluates the impact of the introduction of incentive regulation on technology deployment, as evaluated using two technology deployment metrics, among the population of local exchange carriers in the USA between 1988 and 2001. The regulatory schemes are disaggregated into five categories, permitting examination of heterogeneity among regulatory schemes. The results show that the rate of return method and the other intermediate incentive schemes implemented have had a negative impact on technology deployment. Conversely, the introduction of pure price caps schemes had a positive and significant impact on firms’ technology deployment. These results highlight the importance of appropriate incentive compatible mechanism design in motivating firms to adopt the new and important technologies that have been developed.

Do Real Exchange Rates Follow a Random Walk?: Extracted Inflation-Based Evidence from Japanese Yen

Using the pure price inflation rates extracted and estimated by an innovative financial-asset pricing method, we build and estimate univariate time series models of Japanese yen per U.S. dollar real exchange rates. Employing three methods of modeling, we find consistently that the extracted price index-based real exchange rate, r(t), obeys a stationary, mean-reverting process. The mean-reverting behavior detected is consistent with the less restrictive version of absolute purchasing power parity in which a real exchange rate is allowed to temporarily deviate from its mean. Further, the stationarity of r(t) is fundamentally attributable to frequent and sharp changes in expectations reflected in goods prices that are implied by the extracted pure price inflation rates. Finally, an intuitive conjecture is presented that, in the long run, stationary series (r(t)) would be less difficult to predict than nonstationary (random-walk) time series, because of the long-run, mean-reverting behavior of r(t). The conjecture is supported by the out-of-sample forecasting performance comparison between r(t) and the random-walk CPI-based real exchange rate, for three- to six-month forecast horizons. This would reinforce evidence of the stationarity of r(t). A desirable feature of stationary real exchange rate is also presented with regard to equilibrium error.

Joint Stochastic Dynamic Pricing and Advertising with Time-Dependent Demand

This paper examines the sale of perishable and durable goods in a general class of time-dependent dynamic pricing and advertising models. We derive general qualitative insights in the complex interplay of optimal pricing and advertising decisions. Using a path-wise argumentation we prove structural properties of the optimal expected profits with respect to time, inventory level, price impact, advertising impact and different model parameters, such as discount rate, marginal unit costs, and the holding cost rate. Moreover, we identify sufficient conditions which imply structural properties of optimal joint pricing and advertising strategies. Our analysis also implies general results for other related models, such as pure pricing and pure advertising models.

Altruism and Its Impact on the Price of Anarchy

We study the inefficiency of equilibria for congestion games when players are (partially) altruistic. We model altruistic behavior by assuming that player i 's perceived cost is a convex combination of α i times his direct cost and α i times the social cost. Tuning the parameters α i allows smooth interpolation between purely selfish and purely altruistic behavior. Within this framework, we study primarily altruistic extensions of (atomic and nonatomic) congestion games, but also obtain some results on fair cost-sharing games and valid utility games. We derive (tight) bounds on the price of anarchy of these games for several solution concepts. Thereto, we suitably adapt the smoothness notion introduced by Roughgarden and show that it captures the essential properties to determine the robust price of anarchy of these games. Our bounds show that for atomic congestion games and cost-sharing games, the robust price of anarchy gets worse with increasing altruism, while for valid utility games, it remains constant and is not affected by altruism. However, the increase in the price of anarchy is not a universal phenomenon: For general nonatomic congestion games with uniform altruism, the price of anarchy improves with increasing altruism. For atomic and nonatomic symmetric singleton congestion games, we derive bounds on the pure price of anarchy that improve as the average level of altruism increases. (For atomic games, we only derive such bounds when cost functions are linear.) Since the bounds are also strictly lower than the robust price of anarchy, these games exhibit natural examples in which pure Nash equilibria are more efficient than more permissive notions of equilibrium.

High-frequency drug purity and price series as tools for explaining drug trends and harms in Victoria, Australia.

Methamphetamine-related harms in Victoria have increased recently in the context of stable or declining use prevalence. We determine how changes in price and purity of methamphetamine compared to other drugs such as heroin may, in part, explain these divergent patterns. Detailed methamphetamine and heroin purchase price data from 2152 participant interviews from the Melbourne Injecting Drug User cohort study were used to generate drug price series for the period January 2009-June 2013. Data on drug purity from 8818 seizures made within Victoria were used to generate drug purity series during the same period. Purity-adjusted price data for methamphetamine and heroin were obtained for the period 2009-13 by combining the two data sets. While the average purity of heroin seizures remained consistent and low, the average purity of powder and of crystal methamphetamine seizures increased from 12% [95% confidence interval (CI) = 10-14%] to 37% (95% CI = 20-54%) and 21% (95% CI = 18-23%) to 64% (95% CI = 60-68%), respectively. Crystal methamphetamine purity was bimodal, with observations generally less than 20% or greater than 70%. The average unadjusted price per gram for heroin decreased from $374 (95% CI = $367-381) to $294 (95% CI = $280-308), powder methamphetamine did not change significantly from $252 (95% CI = $233-271), and crystal methamphetamine increased substantially from $464 (95% CI = $416-511) in 2009 to $795 (95% CI = $737-853) in 2011. This increase was offset by an even greater increase in purity, meaning the average purity-adjusted price per gram declined. Furthermore, pure prices of both methamphetamine forms were similar, whereas their unadjusted prices were not. The pure price of heroin fluctuated with no ongoing trends. Decreases in methamphetamine purity-adjusted price along with the bimodality of crystal methamphetamine purity may account for some of the recent increase in methamphetamine-related harm. For a given amount spent, methamphetamine purchase power has increased and the presence of extreme purity variations may challenge individuals' control of consumption.

Parametric Packing of Selfish Items and the Subset Sum Algorithm

The subset sum algorithm is a natural heuristic for the classical Bin Packing problem: In each iteration, the algorithm finds among the unpacked items, a maximum size set of items that fits into a new bin. More than 35 years after its first mention in the literature, establishing the worst-case performance of this heuristic remains, surprisingly, an open problem. Due to their simplicity and intuitive appeal, greedy algorithms are the heuristics of choice of many practitioners. Therefore, better understanding simple greedy heuristics is, in general, an interesting topic in its own right. Very recently, Epstein and Kleiman (Proc. ESA 2008, pp. 368–380) provided another incentive to study the subset sum algorithm by showing that the Strong Price of Anarchy of the game theoretic version of the Bin Packing problem is precisely the approximation ratio of this heuristic. In this paper we establish the exact approximation ratio of the subset sum algorithm, thus settling a long standing open problem. We generalize this result to the parametric variant of the Bin Packing problem where item sizes lie on the interval \((0, \alpha ]\) for some \(\alpha \le 1\), yielding tight bounds for the Strong Price of Anarchy for all \(\alpha \le 1\). Finally, we study the pure Price of Anarchy of the parametric Bin Packing game for which we show nearly tight upper and lower bounds for all \(\alpha \le 1\).

Long-Term Profitability of Volume-Based Price Momentum in Taiwan

In the Taiwanese stock market, this paper discovers a significant outperformance of volume-based price momentum strategies relative to pure price momentum strategies over the holding period of 3–5 years. Specifically, hedge portfolios that are longing low-volume winners and shorting high-volume losers generate superior returns than pure price hedge portfolios of buying winners and selling losers. Moreover, the opposed strategies of buying high-volume winners and selling low-volume losers systematically underperform the pure price momentum strategies. Both results are consistent with those from US. More importantly, both outperformance and underperformance are robust to adjustment of industry effects, book-to-market ratio, and firm size. Furthermore, firm size seems to subsume a larger portion of superior and inferior performances than the other two control factors because the economic magnitude of outperformance and underperformance deteriorates more intensively when it is conditional on firm size than on the other two factors.

Implied Volatility and Forward Price Term Structures

This paper discusses the relation between forward price models (FPM) and the so called implied volatility term structure (VTS). We start by considering the case of pure deterministic forward price volatilities and suppose both forward contracts and at-the-money (ATM) options, on a same underlying, are liquidly traded in the market. We, then, derive no arbitrage conditions between the functional form of the ATM implied VTS and the functional form of forward price volatilities. We conclude the first part by characterizing a parametric family of ATM implied VTS that is compatible with a finite dimensional realization (FDR) of forward prices. Finally, we consider the possibility of stochastic forward price volatilities and derive a no arbitrage drift condition that must hold for the dynamics of ATM implied VTS.

BALANCING THE DUAL ROLE OF DISRUPTOR AND DISRUPTEE

In the framework of disruptive technology, a new product plays the role of a disruptor when it improves quality and captures exisiting consumers from the incumbent. While the profit of the new product typically increases as it moves into the more lucrative segment of the market, such an upstream movement leaves more consumers at the low end unserved, who may become a potential market for even newer products that will disrupt the new product. In this paper, we use modelling approach to study how the firm may deal with this dilemma. In our model setting, we are able to show that the disruptor may balance its profit and risk of being disrupted by appropriately slowing down its migration into the high end. If migration to the high end is strategically important and should not be slowed down, the firm can still defend against disruption by offering a low end product, which is a better option than pure price cutting. Finally, we find that the accessory dimension makes it more likely to have disruption, which explains why new disruptors tend to be superior on accessory dimensions. The firm has more incentive to invest in cost reduction rather than to improve an accessory dimension, because cost reduction helps in capturing more wealthy customers, while improving an accessory dimension helps in capturing more poor consumers. So the disruptors are more likely to focus on disrupting because it is more profitable, rather than investing to improve the accessory dimension to defend against newer disruptors. The existing literature on disruptive technology has so far focused on the interaction between the product that disrupts and the product that is disrupted. Our analysis sheds light on a different angle of the phenomenon, that is, how a product that disrupts and that is disrupted simultaneously.

Developing price and production postponement strategies of substitutable product

PurposeThis paper aims to focus on duopolistic competition under dynamic price and production postponement for two differentiable products that share common product platform at a certain degree of product commonality.Design/methodology/approachBoth price and production postponement modelling are benchmarked according to their profit in order to investigate the product substitutability effect to the profit and also their appropriateness to different competition situations. In addition, dynamic property is applied to show the demand changes effect of both strategic decisions (price and production) against demand uncertainty.FindingsThe results show that the pure price postponement is appropriate to be applied into highly customized products while pure production postponement to configurable products.Research limitations/implicationsPrice and production postponement decisions help managers to optimize product development as well as production strategy by considering demand and supply sides.Practical implicationsPrice and production postponements give alternative ways to managers for deciding on how to produce products as fighting product and mass customized product.Originality/valueInnovative price and production postponement models are the novelty of this paper.

Game theoretic analysis of a multi-period fashion supply chain with a risk averse retailer

This paper studies a single-manufacturer single-retailer multi-period fashion supply chain which sells a category of short-life highly fashionable products. The retailer is risk averse and the supply chain is led by the upstream manufacturer. This paper studies two commonly seen contracts in the fashion industry, namely the pure wholesale pricing contract (PWPC) and the markdown money contract (MDMC). The efficient region for the risk averse retailer’s optimal ordering quantity for each contract is found and this region will: 1) become smaller if the wholesale price increases (under both PWPC and MDMC); 2) get larger when the markdown money increases (under MDMC). We introduce the concept of ‘risk averse quantity reduction level’ (RAQRL). Our analytical findings further indicate that: 1) under scenario one in which the manufacturer’s goal is to maximise the supply chain’s expected profit, the appropriately set MDMC can coordinate the supply chain whereas PWPC cannot; 2) under scenario two in which the manufacturer’s goal is to maximise the supply chain’s expected profit while ensuring the variance of profit is within a limit, both PWPC and MDMC can coordinate the supply chain.

Internet Service Pricing: Flat or Volume?

In this paper, we study the pricing of Internet services under monopoly and duopoly environments using an analytic model in which a service provider and users try to maximize their respective payoffs. We compare a few popular pricing schemes, including flat, volume-based, two-part, and nonlinear tariffs, with respect to revenue, social welfare, and user surplus. We perform a study of the sensitivity of these schemes to the estimation errors. In the duopoly situation, we formulate a simple normal form game between two service providers and study their equilibrium behaviors. Our main findings include: (1) the flat pricing generates higher revenue than the pure volume pricing when the elasticity of demand is low; (2) the volume-based pricing is better for society and users than the flat pricing regardless of the elasticity; (3) the market is segmented into two when one provider provides flat pricing and another provides volume based pricing.

An empirical study of liquidity risk premium in Chinese stock markets

Based on a simple liquidity risk-adjusted asset pricing model, this paper empirically studied the liquidity risk premium and illiquidity compensation in Chinese stock markets. The evidence shows that there are significant illiquidity compensation and liquidity risk premiums in the stocks expected returns; the more illiquid or price impact elastic the stock is, the more significant the tests on its illiquidity compensation and liquidity risk premiums are.; a new illiquidity proxy variable can grasp liquidity risk premium in stock returns because of high cross-sectional correlations between the level of liquidity and liquidity risk. In addition, the market β of classical capital asset pricing model (CAPM) shows less power in interpreting stock return data. So the required risk premium in Chinese stock returns mainly compensates for systematical liquidity risks, not for pure price risk. Key words: Liquidity risk, stock pricing, illiquidity proxy.

Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services

This paper studies price and quality differences across international intermediate input suppliers. We develop price measures that account for (i) differences in product characteristics, (ii) unobserved quality differences, and (iii) pure (frictional) price dispersion across suppliers. Using uniquely detailed transaction- level data from the semiconductor industry, we document large average price differences across suppliers for observationally identical products, and find that price differentials close over the product life cycle. We interpret this finding in a model where buyers face costs of switching suppliers. The theory demonstrates how to use the observed price dynamics to adjust prices for unobserved quality differences across suppliers. The results of this analysis reveal that pure price dispersion and unobserved quality differences are both important in this market. These two features make it difficult to construct constant-quality import price indexes, which generally assume away pure price dispersion. We document the resulting upward bias in standard price indexes, develop a quality-adjusted index for semiconductor fabrication, and propose a general method for bounding the true constant-quality price index.

House Price Inflation in Johannesburg

Did Johannesburg suffer a house price bubble during the last decade? To explore this question the paper first estimates a hedonic model using data from real estate transactions in Johannesburg. A hedonic model may capture pure house price inflation more accurately compared to a median house price series (e.g. the ABSA series). The paper uses the hedonic pure price series to estimates a number of Vector Error-Correction Models (VECM). These models highlight the rather significant impact of credit extension on the growth of house prices. This impact is over and above the impact of disposable income and the mortgage rate, two fundamental factors that explain house prices. The results also highlight the need to let the mortgage rate play a bigger role in the allocation of mortgage credit.

Rational Generating Functions and Integer Programming Games

We explore the computational complexity of computing pure Nash equilibria for a new class of strategic games called integer programming games, with differences of piecewise-linear convex functions as payoffs. Integer programming games are games where players' action sets are integer points inside of polytopes. Using recent results from the study of short rational generating functions for encoding sets of integer points pioneered by Alexander Barvinok, we present efficient algorithms for enumerating all pure Nash equilibria, and other computations of interest, such as the pure price of anarchy and pure threat point, when the dimension and number of “convex” linear pieces in the payoff functions are fixed. Sequential games where a leader is followed by competing followers (a Stackelberg–Nash setting) are also considered.