Reason-based judgments: Using reasons to decouple perceived price–quality correlation

Many models of consumer behaviour assume that people evaluate price and quality independently. However, evidence shows that consumers perceive price and quality as positively related even when they are weakly correlated in the real markets. This paper explores whether this perceived relationship can be cognitively de-coupled by providing explicit reasons why low price and high quality may be compatible. The participants were asked to rate existing stores and fictitious stores in a two-dimensional price–quality space. When the participants were given plausible reasons why the seemingly high quality fictitious stores could have lower than average prices, their judgement of the price–quality relationship was significantly less correlated than when these stores were judged without such reasons. Therefore, the demonstrated phenomenon of reason-based judgments can be used to attenuate the typical price–quality overestimation, or heuristic, which has important implications for decision making research and marketing practice.     

IMPACT OF COMPETITION,INVESTMENT, AND REGULATION ON PRICES OF MOBILE SERVICES: EVIDENCE FROM FRANCE

In this paper, we assess the impact of competition, investment, and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality‐adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality‐adjustment of 8.7%. In a second step, we relate the quality‐adjusted prices to a set of competition, investment, and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low‐cost tariffs without commitment which were introduced to pre‐empt the entry of low‐cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality‐adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%. We conclude that the reduction in quality‐adjusted prices in the last years was largely caused by competition between operators for a new 4G technology and by entry of a fourth low‐cost operator. (JEL L13, L50, L96)     

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.     

RETAIL REDLINING: ARE GASOLINE PRICES HIGHER IN POOR AND MINORITY NEIGHBORHOODS?

This study uses new data on retail gasoline prices in three cities to provide evidence on the relationship between neighborhood characteristics and consumer prices. We find that prices do not vary greatly with neighborhood racial composition, but that prices are higher in poor neighborhoods. For a 10% point increase in poor families relative to middle‐upper income families, retail gasoline prices increase by an average of 0.70%. Two‐thirds of this differential is explained by cost, competition, and demand characteristics of poor neighborhoods. The remaining differential likely reflects price discrimination in response to lower competition and/or more inelastic demand in poor neighborhoods. (JEL D43, J15, L71)     

ON INFLATION AND REAL PRICE VARIABILITY

This paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation. For constant-elasticity demand and cost of production it is shown that a higher demand, a lower cost of production, or a lower cost of price adjustment leads to less intertemporal variability of real prices. If the marginal cost of production does not increase "too" fast, then the average real price is less than the real price that would prevail in the absence of inflation; additionally, a higher demand, a lower cost of production, or a lower cost of price adjustment leads to a higher level of real prices.     

A theory of quality-related differences in retail margins: why there is a 'premium' on premium gasoline

This paper develops a theory of vertical and horizontal product differentiation to explain observed price-cost margin differentials for goods that differ in quality. The difference in price-cost margins between the high- and low-quality goods is shown to depend positively on consumers' average valuation for incremental increases in quality and positively on the distance to each competitor's closest rival. These predictions are largely supported using an extensive station-level data set of premium and regular unleaded gasoline prices from the Los Angeles Basin area from 1992–1995.     

Asset Markets and Equilibrium Selection in Public Goods Games with Provision Points: An Experimental Study

We report experimental results on the effects that auctioning the right to play a public goods game with a provision point may have on equilibrium selection and individual behavior. Auctioning off such a right among a larger population of players strikingly enhances public good provision. Once public good provision is obtained, the auction price at the preliminary stage increases to its upper limit, dissipating all players' gains associated with the provision of the public good. Individual deviations from the equilibrium strategy are neither able to force lower market prices nor to affect provision of the public good in subsequent periods. (JEL C72 , C92 , H41 )     

Does it or Doesn't it? Geographic Differences and the Costs of Living

Abstract The relative cost of living in rural areas has long been of interest to rural sociologists. Today, the popular perception is that rural prices are lower. This study examines geographic differences in the costs of living in Kentucky. The results indicate that, contrary to the popular perception, when prices of the same products and services were compared, there was no consistent pattern of lower prices in the rural counties. Furthermore, differences in the material conditions of rural living meant that there were additional costs that price comparisons alone did not capture.     

ARBITRAGE ACROSS BORDERS: WHY ITUNES GIFT CARDS SELL ABOVE FACE VALUE ON EBAY

This paper is one of the first to explore international price differences and arbitrage opportunities in the market for downloadable content, by linking the sale of iTunes gift cards above face value on eBay to the arbitrage of iTunes' products (which include downloadable music and videos). This paper shows that iTunes gift cards targeted to non‐U.S. buyers tend to sell for higher prices, controlling for seller reputation, shipping costs, and other variables. Information about the buyers' countries allows us to see whether it is the U.S. store's greater product availability or its lower prices that buyers are interested in. (JEL D40, L10, F10)     

USING BASEBALL CARD PRICES TO MEASURE STAR QUALITY AND MONOPSONY

Baseball card prices are used to capture star quality in a new measure of productivity in Major League Baseball. Star quality, which impacts revenues, is determined from a player's baseball card price as the residual in a fit of card prices to performance statistics. This measure is entered into the computation of individual player marginal revenue product and compared to players' salaries using data from the four years leading up to the 1994 MLB strike. Results are examined for monopsonistic exploitation by market size, free agency status, type of player, and other relevant categories. Underpaid and overpaid players are identified.     

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.     

Perceived inflation and expected future prices in different currencies

Five experiments were conducted to investigate whether perceived inflation and expected future prices are influenced by the nominal representation of increases in product prices in different currencies. In contrast to previous research demonstrating overestimates of the perceived inflation of product prices after the transition of the domestic German Mark to Euro [Greitemeyer, T., Schultz-Hardt, S., Traut-Mattausch, E., & Frey, D. (2005). The influence of price trend expectations on price trend perceptions: Why the Euro seems to make life more expensive? Journal of Economic Psychology, 26, 541–548; Traut-Mattausch, E., Schultz-Hardt, S., Greitemeyer, T., & Frey, D. (2004). Expectancy confirmation in spite of disconfirming evidence: The case of price increases due to the introduction of the Euro. European Journal of Social Psychology, 34, 739–760], the price increases were of normal magnitude (5% and 8%) and a larger set of prices was used including small weekly expenses, prices of durables, and rent. All experiments were conducted in Sweden (not member of the European monetary union) employing undergraduates who volunteered to participate in class settings without any financial compensation. The price increases were expressed in the same currency, either actual currencies (Swedish Crowns or Euros) or fictitious currencies with different units. In general inflation was underestimated, to a larger extent when the currency or the product prices were unfamiliar than familiar. It was also shown that product-specific price changes made it difficult to perceive inflationary price increases. Only marginal effects of currency unit were observed.     

Strategies of valuation: repertoires of worth at the financial margins

This article draws upon thirteen months of ethnographic research in a Chicago pawnshop to show how prices of objects in pawnshops are actively, socially negotiated using what I term discursive strategies of valuation. Three kinds of discursive strategies of valuation emerge repeatedly in the data: a. references to the specific material attributes of the objects, b. references to the unique biographical histories of the objects, c. reference to the financial need and (relative) social positioning of the customer involved in the negotiation. Examining these strategies reveals the relationship between socially contingent and culturally constructed perceptions of value and the production of price. I find that rhetorical strategies can and do affect price, within limits. Perhaps most surprisingly, the data show that discursive strategies emphasizing a lower socio-economic status can inflate the value, and ultimately the price, of an object during negotiations.     

Transmission of World Prices to Ugandan Coffee Growers in a Liberalised Economy

This article examines the transmission of world coffee prices to the price received by Ugandan coffee growers by means of Directed Acyclic Graphs which reveal the flow of information from the spot indicator price to the London futures price and then to the growers' price. A positive shock in the futures and indicator prices has respectively a positive and negative effect on the growers' price, and Forecast Error Variance Decomposition shows that uncertainty is attributable to own price, London futures price, and indicator price, in rank order. The article recommends that the Ugandan Coffee Development Authority should provide information on both futures and indicator prices to the growers.     

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)     

Insights into the black box of child care supply: Predictors of provider participation in the Massachusetts child care subsidy system

The United States child care subsidy system relies on the voluntary participation of private providers in the market in order for low-income families to access otherwise unaffordable care. However, with few states able to pay child care providers subsidy payment rates at market value (National Women's Law Center, 2015) and increasing pressure for providers to improve their quality of care (Child Care and Development Fund [CCDF] Program, 2016), there is concern at the federal level regarding the supply of providers willing to participate in the subsidy system (CCDF Program, 2016; Schumacher, 2015). Using administrative data from Massachusetts, this study examines the factors associated with provider participation in the child care subsidy system. Findings from logistic regression analyses indicate that lower administrative capacity, higher private pay prices (in comparison to the subsidy payment rate), and higher local market household income may limit or reduce opportunities for participation in the subsidy system. Results also suggest that for-profit providers are not avoiding participating in the subsidy system, but may find participation challenging if subsidy payment rates are too low (compared to private pay prices). Additionally, although the total pool of accredited providers is small, accredited providers have greater odds of participation compared to non-accredited providers, indicating that families may have some access to quality care. These findings suggest that states should focus on identifying 1) ways to ease administrative impediments to entry into the subsidy system, 2) effective provider recruitment tactics, and 3) monetary/non-monetary incentive structures that can build a large and diverse supply of high quality subsidized care.     

The Enduring Price of Place: Revisiting the Rural Cost of Living☆

Even as the 2016 elections brought increased public attention to rural life, stereotypes and misconceptions abound. One of these misperceptions is the generalization that prices are lower in rural areas. This article is a restudy of Zimmerman, Ham, and Frank (2008) research on geographic differences in the costs of living. Asking the same fundamental question—if someone bought the same thing in a rural and urban area, would they pay the same price?—and using the same methodology, the results 10 years later indicate that, contrary to popular perception, there was again no consistent pattern of lower prices in rural counties and no consistent pattern of a lower rural cost of living in all of the rural areas. While prices are only one piece of the larger picture of how rural households meet their needs, in addition to price differences, the results highlight how differences in rural life create additional costs that extend beyond prices.     

Finite decentralization in a Tiebout economy with crowding types

We study a model with local public goods in which agents' crowding effects are formally distinguished from their taste types. It has been shown that the core of such an economy can be decentralized with anonymous admission prices (which are closely related to cost share prices). Unfortunately, such a price system allows for an arbitrary relationship between the public goods level in a given jurisdiction and the cost to an agent for joining. Formally, this means that admission prices are infinite dimensional. Attempts to decentralize the core with finite price systems such as Lindahl prices suggest that this is possible only under fairly restrictive conditions. In this paper, we introduce a new type of price system called finite cost shares. This system has strictly larger dimension than Lindahl prices but, in contrast to general cost share prices, is finite. We show that this allows for decentralization of the core under more general conditions than are possible with Lindahl prices. Received: 18 January 2000/Accepted: 21 January 2002 The authors would like to thank two anonymous referees for their helpful comments.     

Price reform and welfare: a transition model with queuing

We develop a general equilibrium model of an exchange economy with relative price distortions, where markets for consumption goods are cleared by resource-wasting queues. In general, greater distortions in relative prices lead to lower social welfare. We show, however, that in some cases a free market equilibrium may not exist if subsistence needs for commodities such as food are sufficiently high. In such an instance, removing price distortions will actually lower aggregate welfare.This paper is a revision of an essay from my dissertation at the University of Virginia. Primary thanks go to my advisors, Gerhard Glomm, Gertrude Schroeder, and Roger Sherman. Other helpful comments were made by Charles Engel, Gisela Meyer Escoe, and Chris Swann.     

ADVERTISING AND PRODUCT QUALITY IN POSTED-OFFER EXPERIMENTS

Sellers selected both price and quality but buyers had limited information about those choices in the experiments reported here. Market efficiency was high under full information with truthful advertising of prices and qualities, but was much lower with no advertising of price or quality. Efficiency did not improve when sellers were permitted to advertise price, but not quality, and in half of these experiments "lemons" outcomes occurred. Although the range of outcomes is great, it cannot be claimed that price advertising improves efficiency when quality is unknown.