RESERVE PRICE EFFECTS IN AUCTIONS: ESTIMATES FROM MULTIPLE REGRESSION‐DISCONTINUITY DESIGNS

We present evidence from 260,000 online auctions of second‐hand cars to identify the impact of public reserve prices on auction outcomes. We exploit multiple discontinuities in the relationship between reserve prices and vehicle characteristics to present causal regression‐discontinuity estimates of reserve price impacts. We find an increase in reserve price decreases the number of bidders, increases the likelihood the object remains unsold, and increases expected revenue conditional on sale. We then combine these estimates to calibrate the reserve price effect on the auctioneer's ex ante expected revenue. This reveals the auctioneer's reserve price policy to be locally optimal. (JEL D44, L11, L62)     

A LABORATORY STUDY OF DUOPOLY PRICE COMPETITION WITH PATIENT BUYERS

This article reports a duopoly experiment in which sellers compete to sell to a potentially patient buyer. Each period sellers simultaneously post prices and the buyer costlessly observes either one or both prices. The buyer can then either accept an observed price or reject all offers. Following a rejection, sellers may have an opportunity to post prices again in another round. We study how the duopolists' pricing behavior responds to changes in the likelihood of the buyer observing multiple prices, γ, and the probability of continuing to another round, δ. The unique stationary equilibrium features mixed strategies. Consistent with the equilibrium, observed prices are decreasing in γ and δ. Contrary to the equilibrium, however, buyers sometimes reject profitable price offers, and average prices are lower than predicted when only one round of offers is possible and higher than predicted in the multiple‐round game. (JEL D43, D83, L13)     

ON FRUITFUL AND FUTILE TESTS OF THE RELATIONSHIP BETWEEN SEARCH AND PRICE DISPERSION

We exploit cross‐sectional and temporal differences in search intensity in order to examine the relationship between search costs and price dispersion using a hand‐collected panel data set from Jerusalem's Shuk Mahane Yehuda outdoor market. We present empirical evidence that price dispersion increases with the cost of search using several different measures of price dispersion; however, our interpretation of this finding is sensitive to the search proxy in question. We also address several acute difficulties facing empiricists seeking to test theoretical price‐dispersion models in which consumers are heterogeneous in their search behavior. (JEL L11, L13)     

AUCTIONS WITH RESALE OPPORTUNITIES: AN EXPERIMENTAL STUDY

We study first price asymmetric private value auctions with resale opportunities presented in seller's and buyer's markets. We offer experimental evidence on bidding behavior, prices, and resource allocation. Building upon the Hafalir and Krishna (2008) model, we find that bidders will bid higher in an auction if the resale market is a seller's market than a buyer's market. There is a price/revenue‐efficiency trade‐off established theoretically between these two resale regimes. In equilibrium, however, final efficiency is high irrespective of the resale market structure. Evidence of bid symmetrization and higher final efficiency is found in the buyer‐advantaged resale case. (JEL D44, C92)     

THE IMPORTANCE OF TRADE COSTS IN DEVIATIONS FROM THE LAW‐OF‐ONE‐PRICE: ESTIMATES BASED ON THE DIRECTION OF TRADE

The full impact of trade costs in segmenting product markets cannot be captured by considering aggregate prices or in the absence of information on the direction of trade. We address this problem by utilizing product‐specific prices, cross‐sectional productivity indices, and bilateral trade flows, allowing us to identify the probable source of any one product. We show that trade costs in the form of transportation and distribution costs are important in determining international price differences and segmenting international markets. Physical distance relative to the origin has a precisely estimated positive impact on international deviations from the Law‐of‐One‐Price that is larger than estimates that do not account for the origin of each product. Based on our benchmark estimates, the price elasticity of distance was around 10% in 1990. (JEL F4)     

QUALITY DIFFERENCES,THIRD‐DEGREE PRICE DISCRIMINATION,AND WELFARE

We propose a model with two markets to analyze the welfare implications of price discrimination with quality differences. In each market a local firm that operates in that market only competes against a global firm that operates in both markets. Local firms produce higher‐quality goods than the global firm. If the quality levels of the local firms' products are the same, price discrimination is never welfare‐decreasing. If they differ, discrimination is welfare‐increasing if quantity increases. Because of a positive allocation effect of price discrimination, there are parameter values such that welfare increases while total output decreases with price discrimination. (JEL D43, D60)     

REGIONAL HOUSE PRICE DYNAMICS AND VOTING BEHAVIOR IN THE FOMC

This paper examines the impact of house price gaps in Federal Reserve districts on the voting behavior in the Federal Open Market Committee (FOMC) from 1978 to 2010. Applying a random effects ordered probit model, we find that a higher regional house price gap significantly increases (decreases) the probability that this district's representative in the FOMC casts interest rate votes in favor of tighter (easier) monetary policy. In addition, our results suggest that Bank presidents react more sensitively to regional house price developments than Board members do. (JEL E31, E58, R31)     

FORECASTING CRUDE OIL PRICE MOVEMENTS WITH OIL‐SENSITIVE STOCKS

This paper uses monthly data from 1984:M10 to 2012:M8 to show that oil‐sensitive stock price indices, particularly those in the energy sector, have strong power in predicting nominal and real crude oil prices at short horizons (1‐month‐ahead predictions), using both in‐ and out‐of‐sample tests. In particular, the forecasts based on oil‐sensitive stock price indices are able to outperform significantly the no‐change forecasts. For example, using the NYSE Arca (AMEX) oil index as a predictor, the 1‐month‐ahead forecasts for nominal crude oil prices reduce the mean squared prediction error by between 22% (for the West Texas Intermediate oil price) and 28% (for the Dubai oil price). Moreover, we find that the directional forecast based on the AMEX oil index is significantly better than a 50:50 coin toss. The novelty of this analysis is that it proposes a new and valuable predictor that both reflects timely market information and is readily available for forecasting the spot oil price.(JEL G17, Q43, Q47, C53)     

MANDATORY RETIREMENT AND THE CONSUMPTION PUZZLE: DISENTANGLING PRICE AND QUANTITY DECLINES

This study investigates changes in household consumption at retirement based on a comprehensive, diary‐based household survey from China. We focus on disentangling price changes from quantity changes at retirement. The mandatory retirement policy in China provides a quasi‐experimental setting for nonparametric identification of the true causal effects of fully anticipated retirement. Using a regression discontinuity design, we find that food expenditure declines at retirement, particularly among the less‐educated group. We further show that this decline is driven by a reduction in prices rather than quantities. These findings, along with a documented increase in shopping time for food upon retirement among the less‐educated households, are consistent with a time allocation model in which education enhances the value of leisure. (JEL J26, C21)     

THE WELFARE EFFECTS OF THIRD‐DEGREE PRICE DISCRIMINATION IN A DIFFERENTIATED OLIGOPOLY

This article examines the welfare effects of third‐degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the “strong” market (where the discriminatory price is higher than the uniform price) than in the “weak” market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely owing to an increase in the firms' profits in the case of linear demands. (JEL D43, L11, L13)     

A LABORATORY STUDY OF AUCTIONS WITH A BUY PRICE

We present a series of laboratory experiments that examine auctions with buy prices, which are prices that allow a bidder to stop the auction and buy the item immediately. Two types of buy prices are considered, one that is available throughout the auction and one that disappears with an initial bid. Both are evaluated with and without proxy bidding. We find that the use of a buy price increases revenue, early bidding, and auction efficiency. Differences between outcomes in auctions with permanent and temporary buy prices are consistent with the observed choices in auction design made by online auction sites. (JEL C90, D44, C70, L81)     

SATISFICING AND PRIOR‐FREE OPTIMALITY IN PRICE COMPETITION

We apply a model of satisficing to oligopoly markets with price competition. Sellers have profit aspirations reflecting their conjectures about their competitors' behavior and search for a price guaranteeing these aspirations. Because it seems implausible that people have detailed priors on the others' actions, we postulate that sellers entertain multiple conjectures to which no probabilities can be assigned. This allows us to propose a theory of “prior‐free” optimality and to examine experimentally whether people comply with it. We find that decision makers have difficulties in making prior‐free optimal choices. Most are content to just satisfice, although ways to aspire to more ambitious profits were obviously available. (JEL C92, C72, D43)     

AGE,TIME, VINTAGE,AND PRICE INDEXES: MEASURING THE DEPRECIATION PATTERN OF HOUSES

Age, time, and vintage are key determinants of house prices, yet they cannot be included together linearly or as dichotomous variables in hedonic regressions as construction time + age of house = sale time. We introduce a method where the estimates of the age, time, and vintage effects on prices are obtained in a flexible manner, without requiring us to specify a pre‐determined functional form for any of these variables. Applying our method to Dutch data, we find that the estimated depreciation pattern over the life of houses does not follow the functional forms typically specified for the age of houses in hedonic regressions. (JEL C43, E01, E31, R31)     

HEDONIC IMPUTATION AND THE PRICE INDEX PROBLEM: AN APPLICATION TO HOUSING

In this study, we show how use of the hedonic imputation method complicates the price index problem. In addition to the usual choice between formulas such as Fisher and Törnqvist, the fact that index compilers have some discretion over which prices are imputed implies that it is necessary to choose as well between different varieties of each formula. The functional form of the hedonic model must also be taken into account. We illustrate the importance of these issues in a housing context using house price data for three regions in Sydney over a 3‐yr period. (JEL C43, E31, O47, R31)     

SENTIMENT BIAS AND ASSET PRICES: EVIDENCE FROM SPORTS BETTING MARKETS AND SOCIAL MEDIA

Previous research using attendance‐based proxies for sentiment bias in sports betting markets confirmed the presence of investor sentiment in these markets. We use data from social media (Facebook “Likes”) to proxy for sentiment bias and analyze variation in bookmakers' prices investor sentiment. Based on betting data from seven professional sports leagues in Europe and North America, we find evidence that bookmakers increase prices for bets on teams with relatively more Facebook “Likes,” indicating the presence of price‐insensitive investors with sentiment bias. These price changes do not affect informational efficiency in this market. (JEL L81, G14)     

DO REAL ESTATE BROKERS ADD VALUE WHEN LISTING SERVICES ARE UNBUNDLED?

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal‐agent problem, the broker may not deploy services in ways that promote the seller's interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers' knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability unbundling of MLS listings. We estimate the effect of a seller's decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open‐access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller's use of a broker reduces the selling price of the typical home by 5.9% to 7.7%, which indicates that agency costs exceed the advantages of brokers' knowledge and expertise by a wide margin. (JEL D12, R31, L85)     

ADVANCE PRODUCTION,INVENTORIES, AND MARKET POWER: AN EXPERIMENTAL INVESTIGATION

We report an experiment that assesses the effects of alterations in production conditions and product durability on market power in Bertrand‐Edgeworth duopolies. Static equilibrium analysis predicts that advance (rather than “to demand”) production raises prices, but does not affect profits. The further addition of a simple inventory option causes prices to fall and seller earnings to increase. Contrary to these predictions, we observe similar prices in baseline and advance production treatments, but lower profits given advance production. An inventory option reduces both prices and earnings. Results are driven by the treatments' effects on sellers' capacities to tacitly collude. (JEL C9, D4, L4)     

BUYING THEIR VOTES? A STUDY OF LOCAL TAX‐PRICE DISCRIMINATION

A population's demographic composition may affect political support for various public services. This article examines whether the aging‐in‐place of local residents decreases financial support for public schools in the United States. I expand on previous empirical work by examining whether tax‐price reductions offered to elderly homeowners moderate their effect on local school revenues. The results reveal that an aging population structure substantially decreases school revenues, unless elderly homeowners receive state‐financed reductions in their local tax‐prices. Sizable differences hold even when comparing school districts located near each other but on opposite sides of state borders. Given the imminent aging of the population structure in the United States and many other developed countries, governments' targeted tax reduction policies could have important effects on equilibrium school revenues. (JEL I22, J14, H71)     

HORIZONTAL MERGERS IN THE PRESENCE OF CAPACITY CONSTRAINTS

We examine a merger between two competitors in a Bertrand‐Edgeworth model. We find that the effects of merger depend on the tightness of capacity constraints. The combination of two firms has no price effect if and only if the capacity constraints of all firms are binding both before and after the merger. However, a merger may turn a binding capacity constraint into a slack one, which results in higher prices. In an industry where excess capacity drives the premerger prices of all firms to the marginal cost, a merger may cause prices to rise even though aggregate capacity remains constant. (JEL L13, L40)     

ASSET PRICE BUBBLES AND TECHNOLOGICAL INNOVATION

We introduce borrowing constraints into a two‐sector Schumpeterian growth model and examine the impact of asset price bubbles on innovation. In this environment, rational bubbles arise when the intermediate good producing R&D sector is faced with adverse productivity shocks. Importantly, these bubbles help alleviate credit constraints and facilitate innovation in the stagnant economy. On the policy front, we make a case for debt financed credit to the R&D sector. Further, we establish that a constant credit growth rule (akin to the Friedman rule) outperforms the often prescribed counter‐cyclical “lean against the wind” credit policy. (JEL E32, E44, O40)