FLUCTUATING EXCHANGE RATES AND THE PRICING OF EXPORTS

The purpose of this paper is to examine the invoicing decision of an exporter under a system of pegged exchange rates and a system of freely fluctuating rates. With pegged exchange rates, the exporter may equivalently invoice in its home currency or in the currency of its foreign clients, since the two prices are related by the pegged rate. With fluctuating rates, however, the choice of an invoicing strategy is important and will affect the level of trade. The optimal prices with each strategy are compared, and the exporter's responses to governmental policy instruments are characterized.     

TECHNOLOGICAL ASYMMETRY AMONG FOREIGN INVESTORS AND MODE OF ENTRY

How does the preferred entry mode of foreign investors depend on their technological capability relative to that of their rivals? This article develops a simple model of entry mode choice and evaluates its main testable implication using data on foreign investors in Eastern European countries and the successor states of the Soviet Union. The model considers competition between two asymmetric foreign investors and captures the following trade‐off: while a joint venture (JV) helps a foreign investor secure a better position in the product market vis‐à‐vis its rival, it also requires that profits be shared with the local partner. The model predicts that the efficient foreign investor is less likely to choose a JV and more likely to enter directly relative to the inefficient investor. Our empirical analysis supports this prediction: foreign investors with more sophisticated technologies and marketing skills (relative to other firms in their industry) tend to prefer direct entry to JVs. This empirical finding is robust to controlling for host country–specific effects and other commonly cited determinants of entry mode. (JEL F13, F23, O32)     

ENTRY DETERRENCE AND STRATEGIC ALLIANCES

Researchers have written extensively on the impact that strategic alliances between airlines have on airfare, but little is known of the market entry deterrent impact of strategic alliances. Using a structural econometric model, this paper examines the market entry deterrent impact of codesharing, a form of strategic alliance, between incumbent carriers in domestic air travel markets. We find evidence of market entry deterrence, but deterrence impact depends on the specific type of codesharing between market incumbents as well as the identity of the potential entrant. We quantify the extent to which market incumbents' codesharing influences potential entrants' market entry cost and probability of market entry. (JEL L13, L93)     

ENTRY COORDINATION AND AUCTION DESIGN WITH PRIVATE COSTS OF INFORMATION ACQUISITION

Auction design with endogenous entry is complicated by entry coordination among bidders due to multiple entry equilibria issue. This article studies auction design when information acquisition costs are private information of bidders. We show that this problem can be resolved by sufficient dispersion in these costs. First, we find that a simple second‐price auction with no entry fee and a reserve price equal to the seller's valuation is ex ante efficient, while a revenue‐maximizing auction involves personalized entry fees, which are determined by the hazard rates of their information acquisition cost distribution. Second, we show that sufficient dispersion in the information acquisition costs (more dispersion than a particular uniform distribution by the Bickel‐Lehman dispersive order) can coordinate bidders and implement uniquely the desirable entry. The dispersion in information acquisition costs is also necessary for this “unique implementation” result. (JEL D44, D82)     

IMPERFECT COMPETITION AND BASING-POINT PRICING

This article investigates the relationship between imperfect competition and basing point pricing. Basing-point pricing can emerge if firms at the base site are Bertrand competitors, firms at non-base locations are less than perfectly competitive with each other and are von Stackleberg leaders with respect to base site production, and the products produced at the base and non-base locations are perfect substitutes. Basing-point pricing is associated with competitive prices by base site firms but with markups by non-base site firms equal to their phantom freight charges.     

CONTEST DESIGN AND OPTIMAL ENDOGENOUS ENTRY

This paper derives the effort-maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs. The organizer is allowed to design the contest under a fixed budget with two strategic instruments: the value of the prize purse and a monetary transfer (entry subsidy/fee) to each participating contestant. The results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium and extracts all the surplus from participating contestants. The direction (subsidy or fee) and amount of the monetary transfer depend on the magnitude of the entry cost. ( JEL C7, D7)     

SAFETY FIRST, BANKRUPTCY, AND THE PRICING AND INVESTMENT DECISIONS OF THE FIRM

The paper analyzes the impact of imposing a constraint on the probability of bankruptcy for the pricing and investment choices of firms. Two models are presented in which a firm faces stochastic demand; in one costs are known with certainty, and in the other costs of production are probabilistic. In both cases the constraint induces a reduction in optimal price if demand is elastic. For less elastic demand, price increases may be indicated. With constant costs, the constraint lowers optimal investment. The results are applicable to the analysis of rating agencies' behavior, or to the design of bond covenants, especially for public utilities.     

EFFICIENCY IN EMPLOYMENT BASED HEALTH INSURANCE: THE POTENTIAL FOR SUPRA-MARGINAL COST PRICING

Currently, the majority if privately insured individuals in the U.S. are insured through their employers. This has significant implications for competition and the ability qf a "competitive" insurance industry to assure marginal-cost pricing. The central barrier to competition arises when employers restrict their employees' ability to select among insurance carriers. Several models 4 insurer proft maximization are explored which demonstrate that supra-marginal cost pricing is likely to persist euen when the insurance market appears "cornpetitiue."     

THE NEAR OPTIMALITY OF MARK-UP PRICING

Mark-up pricing policies result in a loss of profits compared to marginal pricing behavior. These losses, however, are often very small, even for large changes in the money supply. But by adopting a simple pricing rule the firm does not have to forecast the future, and avoids the informational and computational costs required to determine the profit maximizing price each period. Thus, even if these costs are small, mark-up pricing policies may be optimal, or approximately so, at least for some firms. In a macro model this is likely to imply large monetary non-neutralities.     

CHILDHOOD FAMILY STRUCTURE AND ENTRY INTO FIRST MARRIAGE

The present study uses data from the National Survey of Families and Households to examine socialization and stress hypotheses which link family structure during childhood with entry into first marriage. Results from logistic regressions show evidence for both hypotheses. The findings show that years lived with mother only during early childhood and change from both biological parents to mother-only families significantly increase chances for delayed marriage for whites. One other factor, being born into a mother-only family, increased chances for early marriage. Thus, for whites, we found counteracting influences of family structure during childhood on marriage. For blacks, the family structure measures, overall, show little effect on entry into marriage. Finally, we found that family structure had a stronger impact for those born in the 1940s than for those born later.