ACQUISITION AND DISSEMINATION OF INFORMATION IN IMPERFECTLY COMPETITIVE MARKETS

In imperfectly competitive markets, incentives for the acquisition and dissemination of information by prices is significantly affected by strategic considerations. Since prices reveal information, firms possessing market power may choose to set prices which are either biased or not adjusted to all available information so as to distort their information content. Even when information is costlessly available strategic considerations may lead firms to remain uninformed. These results are illustrated in a simple Stackelberg model with price-setting firms where the pricing game is preceded by an information acquisition game.     

BUYERS' STRATEGIES, ENTRY BARRIERS, and COMPETITION

In markets where sellers have customer-specific investments, and buyers can make credible, but costly, commitments to switch suppliers, buyers' strategies attenuate the market power of sellers. Furthermore, since current prices and a buyer's decision to switch suppliers are related, limit pricing becomes an equilibrium. Limit prices increase with the time it takes a buyer to switch suppliers, and with buyers' switching costs, but fall with the level of sunk investments. Thus, sunk investments may restrain the sellers' ability to exert market power. The paper questions, then, the standard inverse relationship between market performance and sunk investments.     

Symbolic meanings of prices: Constructing the value of contemporary art in Amsterdam and New York galleries

This article develops a sociological analysis of the price mechanism on the market for contemporary art. On the basis of in-depth interviews with art dealers in New York and Amsterdam, I address two pricing norms: one norm inhibits art dealers from decreasing prices; the other induces them to set prices according to size. To account for these pricing norms, I argue that price setting is not just an economic but also a signifying act: despite their impersonal, businesslike connotations, actors on markets manage to express a range of cognitive and cultural meanings through prices. Previously, meanings of prices have been recognized in signaling theories within economics. However, these meanings are restricted to profit opportunities. Within the humanities, by contrast, meanings of prices are restricted to contaminating or corrosive meanings. The sociological perspective I develop claims that prices, price differences, and price changes convey multiple meanings related to the reputation of artists, the social status of dealers, and the quality of the artworks that are traded.     

CONSUMER SEARCH COSTS AND MARKET PERFORMANCE

We conduct laboratory markets to evaluate the effects of consumer search costs on market performance. The primary research goal is to assess the behavioral relevance of Diamond's [1971] paradoxical conclusion that the injection of a small consumer search cost alters the equilibrium price prediction from competitive to monopoly levels. Although monopoly prices are not consistently observed, we find that search costs do tend to raise prices. Additional experimentation indicates that below-monopoly prices are not explained by buyer avoidance of high-pricing sellers, but that prices increase as search costs are raised.     

Hospital pricing: cost shifting and competition

The issue of cost shifting has taken on enormous policy implications. It is estimated that unsponsored and undercompensated hospital costs--one measure of cost shifting--has totaled $21.5 billion in 1991. The health services research literature indicates that hospitals set different prices for different payers. However, the empirical evidence on hospitals' ability to raise prices to one payer to make up for unsponsored care or lower payments by other payers is mixed at best. No study has concluded that hospitals have raised prices to fully adjust for such actions. The extent of cost shifting is limited by the market. When a hospital has market power, it is able to set prices above marginal costs. However, when a buyer has enough patient/subscribers and a willingness to direct them to particular providers based on price considerations, hospitals have less flexibility in raising prices above costs. Thus, the extent of cost shifting is limited by the market. Cost shifting is not as easy as it may have been in the past because the nature of hospital and insurer competition has changed radically in the last decade. While hospital quality, services, and amenities still matter, some buyers are increasingly concerned about the price they pay. Evidence from studies of PPO and HMO negotiations with hospitals suggests that hospitals' market power is eroding, at least in some areas. In areas with relatively few hospital competitors and little PPO or HMO activity, Medicaid and Medicare price reductions and uncompensated care burdens will be partially absorbed by higher prices paid by private payers. In more price sensitive markets and in markets in which prices to private payers have risen to those commensurate with the market power of local hospitals, such cost shifting will not occur. A market-based approach in hospital pricing requires an explicit policy for the uninsured. In a competitive market, a hospital that traditionally cared for the uninsured by spending some of its profits on them will be unable to do so, at least to the same extent as it did in the past. Increased competition in health care without consideration of the uninsured will decrease the uninsured's access to care.     

THE INCENTIVES FOR RESALE PRICE MAINTENANCE UNDER IMPERFECT INFORMATION

This paper considers both the incentives for and the welfare effects of resale price maintenance (RPM) in retail markets characterized by imperfect consumer information. In markets where point-of-sale information on the product is essential for sales and information on prices is costly, RPM permits manufacturers with some monopoly power to resolve two incentive conflicts with retailers. First, because retailers with price-setting powers do not appropriate the gains in profit to an upstream manufacturer from actions taken to increase demand, their incentives to inform consumers of the product and to set low prices are inadequate. This purely vertical externality results in the classic "double mark-up" of final prices. Second, when consumers' costs of price search vary, stores offering low prices and no information can exist in the market equilibrium. These discount houses free-ride on the informational services of high-price informing retail outlets — a horizontal externality. In the imperfect information setting of this paper, (1) administered pricing improves monopolists' profits by resolving the incentive conflict; (2) the profitable use of a price floor reduces the maximum retail price charged and may reduce the average retail price; (3) price floors or administered prices can be Pareto-improving and more likely welfare (surplus)-improving; (4) price floors are welfare-improving.     

A common-features analysis of Amsterdam and London financial markets during the eighteenth century

We examine the financial linkage between the London and Amsterdam financial markets using stock prices recorded in each market over the period 1723-94 in conjunction with tests for common trends, cycles, and regime shifts. These tests reveal a surprising degree of integration between the markets as their prices move together in both the short and long run. Moreover, shocks to the assets translate quickly and accurately between markets. It also appears that Dutch investment did not destabilize London markets and stock prices in London were the primary determinant of prices in Amsterdam.     

At what price should Bordeaux wines be released?

This paper models optimal release prices of an experience good recurrently issued on markets. Using a sample of Bordeaux wines, we find that using a minimal number of intrinsic and extrinsic attributes is sufficient to explain a large proportion of release prices. We further observe a significant relationship between primary market prices and secondary market prices and general economic conditions. Release prices can deviate from secondary market prices in the short run but remain aligned over the long run. Finally, an out-of-sample analysis indicates that short-run mispricing directly affects the purchase behavior of customers.     

A DIRECT TEST OF THE EFFICIENT MARRIAGE MARKET HYPOTHESIS

This paper takes Becker's efficient marriage market hypothesis at face value, and directly confronts it with data from Hong Kong. The theory of optimal assignment is used to develop an empirical model of spouse selection, which resembles a Tobit model. This model can address positive or negative assortative matching as well as marginal product pricing in marriage markets. We also use a computer algorithm to solve the assignment problem for imputed marital output. The degree to which the actual pairing of husbands and wives corresponds to the optimal pairing provides a goodness-of-fit test of the efficient marriage market hypothesis. ( JEL C51, C61, C78, J12)     

PRICE DISCRIMINATION IN RELATED MARKETS

The Pigou-Robinson pricing rule for third degree monopolistic price discrimination states that price ratios vary inversely with ratios of direct price elasticities of demand. The rule holds when markets are sealed, and cross price elasticities of demand are zero. We show how the rule can fail when imperfect sealing permits leakage. We also develop a general discriminatory pricing rule that holds when leakage causes market demands to be related. The general pricing rule is based on all direct price elasticities of demand, all cross price elasticities of demand, and the size distribution of the markets     

FORCED INFORMATION DISCLOSURE AND THE FALLACY OF TRANSPARENCY IN MARKETS

A theory advanced in regulatory hearings holds that market performance will be improved if one side of the market is forced to publicly reveal preferences. For example, wholesale electricity producers claim that retail electricity consumers would pay lower prices if wholesale public utility demand is disclosed to producers. Experimental markets studied here featured decentralized, privately negotiated contracts, typical of the wholesale electricity markets. Two conclusions emerge: (1) such markets generally converge to the competitive equilibrium and (2) forced disclosure works to the disadvantage of the disclosing side. Information disclosure would result in higher wholesale and thus higher retail electricity prices. (JEL L50 , L94 , D43 )     

Labor market coordination and monetary equilibrium: W H. Hutt’s place in “Pre-Keynesian” macro

Conclusion As the search for microfoundations of macroeconomics has intensified over the last 25 years or so, macroeconomists have paid increasing attention to the economics of the labor market. Hutt’s work on the labor market could provide the microfoundations of a macroeconomics which emphasizes a process perspective and the importance of psychological, institutional, and political rigidities in how that process plays out. The work of the Austrians and the monetary disequilibrium theorists has articulated a consistent vision of how disequilibria in the money market spill over into nonmoney markets and cause real disturbances therein. Along with Hayek’s more general work on the informational properties of prices, Hutt’s work on the price coordination pro-cess in labor markets, can provide a more complete theory of the pricing process which implicitly and explicitly underlies the macroeconomics of those two schools of thought. Aside from his contributions to labor economics per se, Hutt’s work has implications for many fundamental questions in macroeconomics, as his life-long critique of Keynes illustrates. As modern macroeconomics continues its frustrating slide into complex, yet unrealistic, technique, perhaps Hutt’s work will finally begin to get its due when more macroeconomists begin to look for a more institutionally rich and realistic theory of the labor market to serve as their microfoundations.     

PRICING UNDER FEDERAL MILK MARKET REGULATION

Federal milk market regulation sets the wholesale price of most fluid milk in this country. This paper explores the purposes served by price-setting procedures under regulation and their quantitative impact. The institutional and theoretical background is provided, and an econometric model of a regulated milk market is estimated. The latter demonstrates that actual prices are consistent with those which would maximize producer benefit in 1960 and 1970, and that regulation produces quite substantial effects on prices and quantities within markets, on price patterns among markets, and on income distribution and economic efficiency.     

Home Bias or Corporate Loan Market Integration and Financial Globalization

Though the paper focuses on pricing, as background I provide some evidence about loan flows across markets in the form of borrowers' and lenders' propensity to issue outside their natural home market. The data show that borrowers stay home when they can and that they tend to issue in Europe when they must issue abroad. That is, borrowers domiciled in one of the major markets (Europe, the United States, and Asia) almost always issue in that market, whereas borrowers in more remote locations usually issue in the European market. For example, borrowers from Latin America overwhelmingly issue in Europe rather than in the U.S. market.     

MONOPOLY® PRICING

There is a large and rich literature in economics on monopoly pricing. However, a close examination of this literature reveals a surprising gap: there have been virtually no studies of Monopoly^® pricing. We fill that void with an empirical examination of the pricing of the board game Monopoly^®. In particular, we examine market‐level, quarterly prices from 1990 to 2002 and find substantial evidence of the phenomenon of customary pricing. (JEL L83, L1, L12, Z11, D42)     

DID THE EURO FOSTER ONLINE PRICE COMPETITION? EVIDENCE FROM AN INTERNATIONAL PRICE COMPARISON SITE

We study the impact of the Euro on prices charged by online retailers within the European Union. Our data span the period before and after the Euro was introduced, cover a variety of products, and include countries inside and outside of the Eurozone. After controlling for cost, demand, and market structure effects, we show that the pure Euro changeover effect is to raise average prices in the Eurozone by 3 % and average minimum prices by 7%. Finally, we develop a model of online pricing in the context of currency unions and show that these price patterns are broadly consistent with those of clearinghouse models. (JEL D400, D830, F150, L130, M370 )     

Bubbles, inertia, and experience in experimental asset markets

We find that irrational bubbles continue to form in an experimental assets market even though experience lessens specious market pricing. However, this irrationality may remain hidden from the customary observational perspective. Both price expectations and bubbles appear rational, passing both traditional and cointegration tests. Conventional statistical testing has difficulty distinguishing “irrational” inertia from “rational” market behavior. Yet, inertia provides a much better explanation of observed, experimental market prices than do the “fundamentals” Keywords: Inertia, Rational Bubbles, Experimental Markets, Econometric Testing.     

THE HAYEK HYPOTHESIS IN EXPERIMENTAL AUCTIONS: INSTITUTIONAL EFFECTS AND MARKET POWER

We report twelve market experiments utilizing a "seller market power" supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply. The data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market; however, prices generally occur above the competitive equilibrium prediction. Market power in the form of strategic supply withholding does not appear to be responsible for the supra-competitive prices.     

Food‐Retail Development and the Myth of Everyday Low Prices: The Case of Brazil

This article analyses the changes in Brazilian food retailing by investigating the co‐existence of, and the pricing variation across, large supermarket chains and small independent supermarkets. It uses cointegration tests to show that, despite the widespread belief that small supermarkets are inefficient and charge higher prices, they in fact charge lower prices. Accordingly, in contrast to the prevailing literature on food‐retail development, competition in food retail is complex and cannot be described as a simple Darwinian process of market concentration. The article explores the survival of small retail and its consequences for the current discussion on modern food retail in developing countries.     

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)