Set Retail Prices Research Articles

ПОДАТКОВЕ РЕГУЛЮВАННЯ ТРАНСФЕРТНОГО ЦІНОУТВОРЕННЯ ТА ЙОГО ВПЛИВ НА СФЕРУ МІЖНАРОДНОГО БІЗНЕСУ

The article examines the theoretical, methodical and practical issues of transfer pricing in the company taxation system. The principles of choosing different methods of transfer pricing, the procedure and features of their application are given: the method of comparative uncontrolled price is based on external market prices; the "cost plus" method determines prices based on cost and profit; the resale price method is based on setting retail prices; the net profit method determines the profit relative to the volume of sales; the profit sharing method allocates the total profit between the parties in international transactions. It has been established that the comparative uncontrolled price method is the preferred method of determination for substantiating the terms of transactions between related parties. It was determined that the choice of transfer pricing method depends on the type of activity of companies, functional profile and other factors. It is proven that the justification of the conditions of transactions depends on the feasibility of the chosen method, which is chosen taking into account the specifics of the transaction, the presence of internal comparative transactions, commercial obligations of the parties to the transactions, and the functional profile of the company. Automated means of calculation for each method are proposed using the examples of individual non-resident legal entities.

Upstream information sharing in platform-based e-commerce with retail plan adjustment

We examine the incentive of an e-commerce platform to share advanced market demand information with a seller offering an assortment of products on its platform. The platform can operate either as a reseller, setting retail prices, or as a marketplace provider, earning commission fees. The shared information comprises the preferences of the consumers who shop on the platform. With this shared information, the seller can adjust its retail plan according to revealed consumer preferences in each planning cycle. Our analysis revolves around three factors: market variability, the cost of adjusting the retail plan, and the intensity of in-platform competition faced by the seller. Our results indicate that in the reseller setting the platform can be either better off or worse off with information sharing, whereas in the commission fee setting the platform invariably benefits from information sharing. If the platform shares information, it is generally beneficial for consumers in the reseller setting but could be harmful in the commission fee setting. We propose a price ceiling mechanism to incentivize information sharing. Our findings reveal that this price ceiling mechanism is superior to the subsidy mechanism as it yields benefits for all parties – the seller, the platform, and consumers – through information sharing. These results offer valuable insights to e-commerce platforms regarding strategic decisions on information sharing services and contract design to ensure mutual benefits.

The impact of retail pricing leadership under manufacturer encroachment

We examine how retail pricing leadership affects a manufacturer's encroachment decision and how manufacturer encroachment affects its retailer's profitability. When a manufacturer encroaches on the retail market by introducing a direct channel, both the manufacturer and its existing retailer need to set retail prices for their own channels. In setting the retail prices, either the manufacturer or the retailer may be the first mover, or the two may set prices simultaneously. We show that retail pricing leadership significantly affects the encroachment decision if the manufacturer has a selling cost disadvantage in the direct channel. If the manufacturer can lead by setting its direct channel selling price first, it is more likely to encroach, and will do so as long as the degree of consumer acceptance of the direct channel is larger than 1/2. Otherwise, the manufacturer is equally likely to encroach if the retailer sets the retail price first or if they set the prices simultaneously, and the encroachment decision depends on the degree of consumer acceptance of the direct channel and the direct selling cost. Interestingly, when the manufacturer sets its direct selling price before or simultaneously with the retailer, it launches the direct channel to create a threat to the retailer, while when the retailer has first-mover advantage, the manufacturer may directly sell to consumers.

Strategic information disclosure in vertical markets

We investigate the Italian fuel market after an asymmetric transparency rule the came into force allowing gas stations to conceal some price cuts on the governmental price comparison platform, hardly visited by customers but used by oil companies to monitor the market. As oil companies usually set retail prices, and gas stations are in charge of communication, the disclosure of price cuts induces rival wholesalers to behave less aggressively. Consequently, the prices of those gas stations which conceal information and those of their neighboring competitors are, on average, higher. Empirical findings support the conclusions of the strategic information disclosure argument, and they leave some room for complementary explanations, such as differences in costs or in profitability.

“Greasy Thumb”—The Man Who Made the Chicago Mob

“Greasy Thumb”—The Man Who Made the Chicago Mob

Asymmetric information, intermediation, coordination, rational self-selection and social welfare

To understand the choice of an intermediary, let us focus on the organization ofexchange of products (goods and services) between sellers and buyers throughthe two extreme forms of intermediary exchanges, ignoring the other roles thatintermediaries often play. In one оf thе forms of intermediary exchanges, the intermediary acts as a dealer (retailer) in a sense that it buys products from sellersand resells them to buyers: pricing is centralized by the intermediary. In the second form of intermediary exchange, the intermediary does not take control of theseller’s products, but simply offers access to a platform (or marketplace) wherebuyers and sellers can interact as they see fit: pricing is decentralized to marketparticipants, and the platform- taxes trade. The first form corresponds to a business model in which the dealer sets the wholesale price for sellers and sets theretail price for buyers, and sellers and buyers are price-takers. The second formcorresponds to a business model in which the platform operator collects a platform usage charge from each seller and collects a platform usage fee from each buyer, and sellers set retail prices for buyers. Market intermediaries coordinatethe actions of buyers and sellers. Firms carry out transactions, servicing thepayment system, inventory control, and record keeping, which are important forthe functioning of markets. In addition, firms provide a central place of exchange, thus reducing the search costs for buyers and sellers. By comparing thecosts of intermediation with the costs of non-intermediated exchange in the markets, matching buyers and sellers, or the costs of search, it can be shown that anintermediated exchange happens to be more beneficial. Indirect network effectson both sides of the market lead to the concept of so called two-sided platforms.In such a platform, the primary role of intermediary is to control access to theplatform that at least two groups of economic agents use to their interaction. Asimilar platform should be valued more by users of each group when the platform is used more by another group. Individual decisions to join a particularplatform then generate indirect network effects on agents on the other side ofplatform. Due to the centralized operation of the platform, the intermediary canadd value and capture rents by facilitating the internalization of the externalitiesrelated with network effects. The characteristics of intermediaries must meetcertain expectations of market participants.

Matching Competitor's Price in the Presence of Operational Frictions

Problem Description: A price match guarantee (PMG) is a retail offer to match a rival's retail price on the same product. We ask whether or not a brick-and-mortar retailer should offer a PMG, knowing that a consumer can buy the same product either from her or a competing, manufacturer-owned online store. Academic/Practical Relevance: We provide a new multi-channel framework that combines assortment, stocking, and pricing decisions in the presence of stochastic demand and quantity constraints. Previous structures at most addressed pricing and variety with deterministic demand. Methodology: We theorize that a manufacturer can simultaneously sell his output through an independent brick-and-mortar retailer and his online store. The manufacturer designs the product line and sets a wholesale price. He can develop the same product design for both channels. Or, he can create a separate product for each channel. The independent retailer responds to the product line design and the wholesale price by announcing a stocking quantity. Then, demand realizes, and both firms set retail prices in their stores. The brick-and-mortar retailer cannot sell more than what she ordered. Results: In the literature, PMGs are mostly seen as a profitable way to facilitate cartel pricing. Previous studies, however, did not consider the operational complexities of distributing goods to stores. In our model, which does consider such complexities, PMGs can be either profitable or unprofitable. We also find that the brick-and-mortar retailer might offer a PMG not to engage in cartel pricing but to be given a higher-quality product from the manufacturer that she would be otherwise. Finally, we find that retailers who provide PMGs may go beyond price-matching to adopt a price-beating policy. Managerial Implications: We explain that the optimality PMGs boils down to a parameter that describes order fulfillment efficiency online and a parameter that describes fulfillment efficiency at the brick-and-mortar store.

Endogenous price leadership with an essential input

The Hamilton-Slutsky endogenous timing methodology is applied to differentiated duopolies where, motivated by access pricing literature, one firm owns an essential input, sold wholesale to the rival. Both firms then set retail prices for their differentiated goods. The scenario and results are different from standard endogenous timing duopolies, encompassing three prices (one wholesale, two retail) rather than two, with unique timing game equilibrium which always entails retail price leadership by the input owner, thus providing a new and powerful rationalisation for “Stackelberg”. The results call into question the generic access pricing assumption that simultaneous moves determine retail (downstream) prices.

Retail and Wholesale Electricity Pricing Considering Electric Vehicle Mobility

We consider the operation of multiple charging network operators (CNOs), each serving a population of electric vehicle (EV) drivers who subscribe to them for charging services. The CNOs set retail prices for the charging stations they operate, which effectively control the electricity demand and queues formed at their charging stations. The stations’ electricity demand also ties the CNOs’ retail optimization problem to their position in the wholesale market of electricity, creating a coupling between the electric transportation systems and the bulk power grid, which is managed by an independent system operator (ISO). In this paper, we provide retail pricing mechanisms and iterative wholesale market-clearing algorithms that together maximize social welfare in this coupled system. Specifically, our algorithm would enable the CNO to reduce its electricity costs and the customers’ travel delays (including charging station queueing times) and the ISO to reduce societal electricity costs by tapping into the EVs’ flexibility as mobile electric loads. Our theoretical analysis relies on the application of congestion pricing techniques to a capacitated user equilibrium problem on an energy-and-time expanded transportation network model. This expanded network allows us to track the travel costs of individual EVs, including their limited battery charge, the cost of waiting in queues at public charging stations, as well as the temporally variant nature of travel times.

Cooperative purchasing and preactive inventory sharing – Channel balancing and performance improvement

We consider two competing firms that source from external suppliers and sell partially substitutable products in uncertain and price-sensitive markets. The merger of suppliers puts them in a position to demand better wholesale price terms and force them to seek various initiatives for channel rebalancing. One often observed practice is cooperative purchasing, whereby firms agree to source together. Another one is preactive inventory sharing, which belongs to dual sourcing. Firms trade inventories with each other after revealing market uncertainties but before setting retail prices and serving respective markets. We show that these two operation practices substitute each other to lower the firms’ effective sourcing costs but are complementary in uncertain markets. However, different from cooperative purchasing that tends to restrain the firms’ total order and harm the supplier, preactive inventory sharing will result in more aggregated sales and benefit the supplier. Cooperative purchasing is more effective to improve the profits of the firms. Wherever it is not a feasible strategic option, preactive inventory sharing can take over to claim most of the desired profit gains to the firms. Its effectiveness can be enhanced particularly when the markets are highly volatile or there is economy of scale in production at the supplier.

Responsive pricing and stock redistribution: Implications for stock balancing and system performance

We consider two firms that order from a supplier and sell products to the markets with uncertain demand. The firms can transship stocks in between at an endogenous transfer price and set retail prices after learning actual market sizes. The relative timing of stock transshipment and retail pricing, both ex-post market size realization, gives rise to two decision models. The firms set retail prices and transship upon stock imbalance in the pro-pricing model, and, furthermore, transship stocks in between before retail pricing and demand satisfaction in the pro-transshipment model. We demonstrate that responsive pricing alone keeps the firms off stock imbalance and insulates them from the impacts of market uncertainty, and responsive stock redistribution contributes to a more efficient deployment of stocks to market selling, even absent volatility. Enhanced responsiveness in stocking and pricing benefits firms, but can hurt the supplier unless its production cost is sufficiently low.

When and what wholesale and retail prices should be set in multi-channel supply chains?

This paper investigates the optimal timing and level of wholesale and retail prices set in multi-channel supply chains, where a manufacturer produces and sells products to retailers that compete to resell the products, by applying the framework of an observable delay game devised in noncooperative game theory. We assume that one manufacturer and two retailers, which constitute a two-echelon supply chain, can select not only the levels of wholesale and retail prices, respectively, but also the timing of pricing. Our analysis of a dynamic game composed of discrete periods provides two useful conclusions for operational decision support. First, the manufacturer must simultaneously set its wholesale prices for products that are sold to separate retailers at the same time. Second, in contrast to the simultaneous price setting by the manufacturer, the retailers must sequentially set respective retail prices at different times; thus, the retailers should stagger their timings for setting retail prices. We formally demonstrate that these timings of pricing decisions by the manufacturer and the retailers constitute a subgame perfect Nash equilibrium in the dynamic noncooperative game played by the three supply chain parties. Consequently, these conclusions can be used as practical guidelines for supply chain members choosing optimal timing of pricing.

Consumer search costs, geographical concentration, and retail gasoline pricing: Evidence from inland Japan

We examine determinants of retail transaction and list prices for gasoline using cross-sectional data for gas stations in inland Japan. The study makes two original contributions: it examines inland Japan where gasoline prices at proximate stations theoretically should be identical, and it analyzes retail transaction and list prices for gasoline. Empirical analysis yields three results. First, the concentration of stations correlates negatively with gasoline prices, but its effects are attenuated by increased numbers of uninformed consumers. Second, stations should set retail prices that include markups based on location, their service features, and brand affiliation. Third, they should charge different markups for different grades of gasoline based on concentration of stations and location. Our findings suggest that consumers’ search for stations that set lower price could significantly influence pricing and that providing price information could reduce search costs and gasoline prices, thereby raising social welfare.

E-book pricing and vertical restraints

This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010, five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers’ ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross-publisher variation in the timing of the return to the wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.

The Agency Model and MFN Clauses

I provide an analysis of vertical relations in markets with imperfect competition at both layers of the supply chain and where exchange is intermediated either with wholesale prices or revenue-sharing contracts. Revenue-sharing is extremely attractive to firms that are able to set the revenue shares but often makes the firms that set retail prices worse off. This is so whether revenue-sharing lowers or raises industry profits. These results are strengthened when a market moves from “the wholesale model” of sales to “the agency model” of sales, which results in retailers setting revenue shares and suppliers setting retail prices. I also show that retail price-parity restrictions raise industry prices. These results provide a potential explanation for why many online retailers have adopted the agency model and retail price-parity clauses.

Early Bird Discounts and Dealer Services

We study a widely used ordering process (“Early Bird Discounts”) whereby a profit-maximizing manufacturer permits his dealers to place advance orders at a discount before they set retail prices. We show that such discounts may be used to shift just enough channel profits to dealers to enable them to cover their fixed costs and stay in business. If the manufacturer instead simply cut his wholesale price in order to generate gross margins for his dealers, these margins would soon dissipate as price competition among dealers selling the same product forced retail prices back down to the per-unit cost. We show that when dealer fixed costs are low, the manufacturer offers an Early Bird Discount to his multiple dealers that induces all but two of them to exit; when fixed costs are high, the manufacturer offers no preorder discount (i.e. switches to linear pricing) and induces all but one dealer to exit. Although uniform slotting allowances could also be used to reward dealers, a sales-based alternative like an Early Bird Discount sometimes has a key advantage when the manufacturer has dealers in cities of different sizes. If the same Early Bird Discount is offered, dealers in markets with more consumers, who typically have larger fixed costs, will preorder larger amounts and will automatically receive higher gross margins. To duplicate such payments with slotting allowances, non-uniform allowances would have to be offered to firms in different markets, which is divisive and possibly illegal.

El olvido de un sistema de cálculo de costes andalusí (primer tercio del siglo XIII)

This paper contributes to the knowledge of the historical heritage of accounting of Al-Andalus. In particular, a study is made of a cost calculation system for establishing pricing in the Book of Good Governance by the Souk of Málaga, that was written in the first third of the 13th century by Al-Saqati. These calculations were used to set retail prices. The study provides evidence on the forgetting of these cost calculations in the Middle AgeS and analyzes the causes of the failure to transmit this knowledge to the Christian kingdoms of the Iberian Peninsula. The paper contributes both to the literature on Accounting History, dealing with a case related to a rarely studied spatial and temporal context, such as Al-Andalus in 13th century, as well as to the study of mechanisms of transfer of accounting technology. It is presented as a case in which the factors identified in the literature as inhibitors of these mechanisms had made it very difficult for the transmission of accounting concepts.

E-Book Pricing and Vertical Restraints

This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010 five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers' ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross-publisher variation in the timing of the return to the wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.

Opaque Distribution Channels for Competing Service Providers: Posted Price vs. Name-Your-Own-Price Mechanisms

Opaque selling has been widely adopted by service providers in the travel industry to sell off leftover capacity under stochastic demand. We consider a two-stage model to study the impact of different selling mechanisms, posted price (PP) versus name-your-own-price (NYOP), of an opaque reseller on competing service providers who face forward-looking customers. We find that in this environment, providers prefer that the opaque reseller uses a posted price instead of a bidding model. This is because the ability to set retail prices is critical for extracting surplus from customers who wait to purchase from the reseller. Such surplus extraction enables providers to set high prices for advance sales and obtain high profits. The dominance of PP over NYOP disappears, however, when competition between sellers is minimal or absent. We extend our model to multiple opaque resellers who compete in selling off last-minute capacity for service providers and find that our main insights continue to hold with differentiated resellers. Despite providers' preference in favor of PP, there are circumstances under which the opaque reseller earns higher profits under NYOP. Leisure customers might also prefer the bidding mechanism, which allows them to retain some surplus. This can help explain the rapid growth of the NYOP model over the last decade. Our findings are consistent with the evolution of opaque selling in the travel industry, and in particular, the recent trend towards more published price sales for opaque products.

The Agency Model and MFN Clauses

I investigate the of sales, in which suppliers set retail prices and share revenue with retailers. Perhaps surprisingly, it is not the case that the agency model eliminates double markups; retailers continue to impose a markup because the revenue-sharing contracts they select distort the perceived marginal cost of suppliers. Nonetheless, when retailers compete in revenue shares, adopting the agency model lowers retail prices and industry profits. Yet, retailers' profits increase. Most-favored nation clauses that stipulate retail price parity can facilitate the emergence of high industry prices, but in some cases may also raise market-entry incentives and benefit consumers. My results provide an explanation for why many online retailers have adopted the agency model and MFN clauses.