Standard Pricing Theory Research Articles

Government Failure vs. the Market Process during the COVID-19 Pandemic

This paper argues that government policies such as lockdowns and command and control regulation of businesses have not efficiently addressed the nature of the COVID-19 externality because these interventions fail to take account of insights from standard price theory about the reciprocal nature of externalities and the allocation of rights such that least cost avoiders adjust behavior. Furthermore these interventions stifled the market’s entrepreneurial adjustment process that partially ameliorates the externalities over time.

ACCOUNTING FOR DEBASEMENTS: INDIVISIBILITY OR IMPERFECT RECOGNIZABILITY OF MONEY

The widespread prevalence of debasements in medieval Europe constitutes a puzzle under standard price theory because people voluntarily exchanged heavy coins for lighter ones; the difference being kept as seigniorage. I explore two properties of commodity monies that might make holding light coins more desirable, namely indivisibility and imperfect recognizability. If the agent trades indivisible coins, there are inefficiencies arising from over production of goods when the agent uses the heavier coin. Also, when coins are imperfectly recognizable, the heavy coin faces adverse selection. I find that under some parameters, indivisibility by itself leads to positive revenue following debasements, but in a way that eliminates co‐circulation of coins. While with a sufficient degree of imperfect information, debasements can generate positive revenue and also co‐circulation of coins. (JEL D82, D83, E40, E42, N10)

Understanding Positive Asymmetric Pricing with a Log-Concave Demand Function and Constant Marginal Costs

The stylized fact of prices increasing more strongly than they decrease in response to identically-sized cost changes, have been confirmed in many empirical studies. However, most of them claim that standard pricing theory cannot account for this phenomenon. Using constant marginal costs and allowing the demand function to be log-concave, this paper shows that the positive asymmetric pricing phenomenon in terms of magnitude can be explained by two of the classic standard economic competition models, Stackelberg with homogenous goods and Bertrand with non-homogenous goods. Furthermore, based on simulations, this paper compares the magnitudes of asymmetry generated in the standard economic competition models. Results show that with a log-concave demand function and constant marginal costs, the magnitude of the positive asymmetric pricing is positively related to the market power. Therefore, the monopoly model is the most asymmetric one, followed by Cournot, Stackelberg and Bertrand.

Mixed pricing in monopoly and oligopoly: theory and implications for merger analysis

ABSTRACTMixed pricing is when firms supplying an input to other firms charge some customers a fixed, take-it-or-leave-it (ToL) price, whilst other customers are allowed to bargain for a special (lower) price. The practice appears to be almost ubiquitous in business-to-business markets. The paper analyses how monopoly or non-cooperative oligopoly sellers will optimally choose which customers to bargain with, and will choose the ToL price to be paid by other customers. In the model, average revenues and thus profits increase as the number of competitors gets smaller, but this is achieved without the restriction of output predicted by standard price theory. Implications for merger analysis and policy are drawn out.

Dead Ends and Living Currents: Distributism As a Progressive Research Program

Distributism, a social program most closely associated with Catholic social teaching, calls for widespread and decentralized property ownership. Much in distributist thought, when considered in light of standard price theory, is simply untenable. But there is also much in distributist thought that is interesting and viable. We discuss the aspects of distributism best discarded, and the aspects that can serve as the foundation for a progressive research program.

Whose money is it anyway? Ingroups and distributive behavior

Price theory is often used to explain reactions to rebates and subsidies that are meant to encourage charitable giving. This paper describes the results of a laboratory experiment that tests standard price theory alongside an alternative perspective based on research on the perceptions and behavior of ingroups. Using a modified dictator game, we find that rebates that decrease the price of giving only increase amounts given when they are exogenously funded by the experimenters. When rebates are funded by members of one's group, the decreased price of giving does not lead to increased amounts given. The result suggests that the presence of an ingroup mentality can mediate the relationship between giving and price.

Temptation, self-control, and competitive nonlinear pricing

Standard pricing theories consider consumers without temptation. With temptation and costly self-control, consumers dislike choice sets with tempting alternatives. We study firms' strategy against such consumers, using Gul–Pesendorfer preferences and a game where firms compete by offering menus.

An econometric study of the decisions of a town planning authority: complementary & substitute uses of industrial activities in Hong Kong

AbstractThis is a contribution to the research on the interface between urban economics and urban planning at the micro level on the one hand and economic development at the macro level on the other hand by a study of the relationship between the performance of the development application mechanism and economic development. This study is conducted in the light that neither urban economics nor urban planning research has utilized useful development control information that can help better understand the spatial and linkage aspects of the industrial sector in economic development. A probit study of a relatively large population of statistics (with 1728 observations) concerning planning applications for uses in lands under industrial zoning in Hong Kong is conducted in terms of 5 refutable hypotheses about the role of the planning authority in respect of land uses that are neutral to, complementary to and substitutes of industrial uses in a local context where major structural changes are occurring in the economy. The hypotheses are derived from standard price theory. The test discovers that, consistent with the theory of substitute goods, that the probabilities of mixed industrial/office and pure office uses in industrial zones being approved were dependent on the rise and fall of the manufacturing sector (measured in terms of labor share). However, those for ancillary office use, a use that theoretically should be complementary to industrial activities, were independent of the state of the manufacturing sector. Copyright © 2002 John Wiley & Sons, Ltd.

Valuation Uncertainty and Demand Dynamics: An Application to Tickets Markets

In ticket markets, consumers often learn their valuations over time meaning that they do not know how much they value the good until they are about to consume it. When consumers' valuations can change arbitrarily over time, the aggregate demand also changes over time, but not so arbitrarily. In fact, the inverse demand gets steeper over time because consumers' valuations become more dispersed. This insight on the demand dynamic suggests several implications about the way prices and quantities change as tickets are sold closer to the consumption date. These implications are consistent overall with several pricing practices observed in ticket markets which are difficult to explain under standard pricing theory such as revenue management, under-pricing resulting in rationing, and control of resale rights.