An Empirical Analysis Of Competitive Nonlinear Pricing
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Author | : Gaurab Aryal |
Publisher | : |
Total Pages | : 42 |
Release | : 2019 |
Genre | : |
ISBN | : |
We estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses (e.g., doctors, electricians) from two Yellow Page Directories in one U.S. city-market. Variation in individual choices and payments allow us to identify the joint density of preferences, marginal costs of publishing and common utility parameters. Our estimates suggest substantial welfare loss due to asymmetric information. Comparing duopoly outcomes with (counterfactual) monopoly outcomes, we find that with less competition (i) producer surplus increases substantially; (ii) more “low-type” consumers are excluded; (iii) product variety increases, but benefits accrue only to the “high-type” consumers; (iv) total consumer surplus decreases; (v) but its distribution, across consumers, does not change.
Author | : Soheil Ghili |
Publisher | : |
Total Pages | : 0 |
Release | : 2023 |
Genre | : |
ISBN | : |
In "continuous choice" settings, consumers decide not only on whether to purchase a product, but also on how much to purchase. As a result, firms should optimize a full price schedule rather than a single price point. This paper provides a methodology to empirically estimate the optimal schedule under multi-dimensional consumer heterogeneity. We apply our method to novel data from an educational-services firm that contains purchase-size information not only for deals that materialized, but also for potential deals that eventually failed. We show that the optimal second-degree price discrimination (i.e., optimal nonlinear tariff) improves the firm's profit upon linear pricing by about 7.9%. That said, this second-degree price discrimination scheme only recovers 7.4% of the gap between the profitability of linear pricing (i.e., no price discrimination) and that of infeasible first degree price discrimination. We also conduct several further counterfactual analyses (i) comparing the role of demand- v.s. cost-side factors in shaping the optimal price schedule, (ii) examining third-degree price discrimination, and (iii) empirically quantifying the magnitude by which incentive-compatibility constraints impact the optimal pricing and profits.
Author | : Liang Chen |
Publisher | : |
Total Pages | : 0 |
Release | : 2023 |
Genre | : |
ISBN | : |
Author | : Ping Xiao |
Publisher | : |
Total Pages | : 252 |
Release | : 2008 |
Genre | : |
ISBN | : |
Author | : Carl Chiarella |
Publisher | : Emerald Group Publishing |
Total Pages | : 563 |
Release | : 2006-05-30 |
Genre | : Business & Economics |
ISBN | : 0444521224 |
This book represents an ongoing research agenda the aim of which is to contribute to the Keynesian paradigm in macroeconomics. It examines the Dynamic General Equilibrium (DGE) model, the assumption of intertemporal optimizing behavior of economic agents, competitive markets and price mediated market clearing through flexible wages and prices.
Author | : Eduardo Brou |
Publisher | : |
Total Pages | : 24 |
Release | : 2013 |
Genre | : |
ISBN | : |
According to received Economic Theory, the implementation of price discrimination by a firm requires market power, at least in the short term. However, mere observation of reality, confirmed by empirical studies, shows that in extremely competitive industries, with approximately zero economic profit, the practice of price discrimination is verified, especially its second degree variant (Nonlinear Pricing), this phenomenon being more the rule than the exception.This paper explains theoretically the sustainability of second degree price discrimination in perfectly contestable markets (a generalisation of the notion of perfectly competitive markets i.e. those without any market power), thus explaining an empirical phenomenon not authorised by received Economic Theory. Nonlinear Pricing systems emerge as mechanisms that, in competitive environments, and with minimal central planning (centralisation of information), will allow greater social efficiency, constituting a "second-best invisible hand."
Author | : Vrinda Kadiyali |
Publisher | : |
Total Pages | : 0 |
Release | : 1998 |
Genre | : |
ISBN | : |
Researchers have recently developed models for determining which market conduct best describes observed data. We apply these techniques from the "new empirical industrial organization" literature to the competitive product line pricing decision, where a firm strategically prices its brands when determining the profit-maximizing conduct in the market. Demand, cost, and market structure are estimated endogenously. Empirical results from analyzing price competition in the laundry detergent market between Procter and Gamble selling Tide and EraPlus, and Lever Brothers offering Wisk and Surf, indicate that each firm positions its strong brand as a Stackelberg leader, with the rival's minor brand being the follower.
Author | : Andrea Attardi |
Publisher | : |
Total Pages | : 46 |
Release | : 2015 |
Genre | : Assets (Accounting) |
ISBN | : |
Many financial markets rely on a discriminatory limit-order book to balance supply and demand. We study these markets in a static model in which uninformed market makers compete in nonlinear tariffs to trade with an informed insider, as in Glosten (1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze the case where tariffs are unconstrained and the case where tariffs are restricted to be convex. In both cases, we show that pure-strategy equilibrium tariffs must be linear and, moreover, that such equilibria only exist under exceptional circumstances. These results cast doubt on the stability of even well-organized financial markets.
Author | : Yu Ma |
Publisher | : |
Total Pages | : 40 |
Release | : 2013 |
Genre | : |
ISBN | : |
We build an econometric model of a household's purchase incidence and brand choice decisions in complementary product categories to account for cross-category dependence in demand. Complementarity is modeled as the additional utility that a household derives from the joint consumption of brands in complementary categories. We estimate the proposed multi-category demand model using scanner panel data on cake mix and frosting categories. Using the estimated demand model as an input, we investigate whether the observed retail prices in the two categories are consistent with joint-category profit maximization behavior on the part of the retailer. We also investigate whether manufacturers' pricing behavior is consistent with maximizing the sum of profits from their brands (bearing the same umbrella name) in both complementary categories. Lastly, we investigate the nature of vertical channel interactions between the manufacturers and the retailer.We find that our proposed multi-category demand model fits households' purchasing outcomes better than traditional single-category demand models (which yield significantly under-stated within-category price elasticities). While each brand in one category is a complement for every brand in the other category, the cross-category complementarity and cross-category price elasticity are found to be strongest with respect to the umbrella brand name in the other category. We find that the data are consistent with joint-category profit maximization behavior by the retailer across the two categories, and with a Vertical Nash game between the retailer and the manufacturer. Finally, we find that the data are consistent with a Bertrand-Nash pricing game among manufacturers maximizing the sum of their brands' profits in the two categories. In fact, joint-category profit maximization is found to be a dominant strategy for each manufacturer.
Author | : Frank H. Page |
Publisher | : |
Total Pages | : 0 |
Release | : 2001 |
Genre | : Economics |
ISBN | : |