TRACKING CUSTOMER SEARCH TO PRICE DISCRIMINATE

The electronic technologies of the Internet make it possible for sellers to track potential customers and discriminate between the informed and uninformed. In this article, we report an experiment that investigates the market impact of firms tracking customers and offering discriminatory prices based on search history. We find that consumers, on average, face the same prices when sellers have the ability to track customers and price discriminate as when sellers post a single price for all buyers. However, informed buyers receive lower prices when sellers can detect buyer search, whereas uninformed buyers receive lower prices when firms cannot track customers. (JEL D43 , L13 , C92 )     

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)     

INTERNATIONAL TRADE AND LABOR‐MARKET DISCRIMINATION

Discrimination reduces the matching probability and output in the skill‐intensive differentiated‐product sector so that discrimination‐induced comparative advantage may overshadow technological comparative advantage in determining the pattern of trade. Trade liberalization generates a decrease in the skilled‐worker wage gap in the country that is an exporter of goods from the simple sector but increases it in the country that is a net exporter of differentiated products. Trade liberalization has an opposite effect on firms. In the country that is an exporter of simple goods, trade liberalization reduces the profits of the nondiscriminatory firms by more than those of the discriminatory firms. (JEL F16, F66, J71)     

SIMULATING A MULTIPRODUCT BARTER EXCHANGE ECONOMY

We describe a multiproduct barter trading experiment in which students exchange real goods in an open market based on their own personal preference. The experiment is designed for simulating a pure exchange market in order to demonstrate the role of money and its functions in real economies by showing the limitations and inefficiencies of the traditional barter economy. In addition, the simulation is very effective in highlighting some of the key features that an object that serves as money needs to possess in order to function as an efficient medium of exchange, unit of account, and store of value.     

Comment transformer un produit en marchandise et lui attribuer un prix : le traitement de la viande dans la grande distribution

Several social science studies have described the conditions under which goods and services become merchandise. In 2002, Sociologie du travail [Sociologie du travail 44 (2002) 255-287] presented contrasting approaches to “quality” by focusing on the processes of identifying and evaluating goods. Approaching this question from the angle of meat-packing provides us with means for accurately describing the relevant operations in this commodification as well as the way that mass marketing has shaped the two aforementioned processes. By leaving aside operations specifically intended for customers and concentrating on those used in mass marketing, we see how meat is “objectified” as it circulates, and how its value and price depend on processing the data ensuing from this objectification.     

Employer attitudes towards refugee immigrants: Findings from a Swedish survey

Based on a large‐scale survey of Swedish firms, the authors identify significant heterogeneity in their attitudes towards refugee hiring, job performance, wage setting and discrimination, though experience of employing refugees reduces negative attitudes. Firms’ reasons for discontinuing their employment of refugees are not related to discrimination by staff or customers, but rather to refugees’ suboptimal job performance. While the majority of firms do not regard the collectively agreed minimum wages as an important obstacle to the hiring of refugees, firms with a large share of refugees on the payroll report that reducing those wage rates would enhance employment substantially.     

Can High Prices Ensure Product Quality When Buyers do not Know the Sellers' Cost?

The 1981 Klein-Leffler model of product quality does not explain why high-quality firms would dissipate the rents they earn from quality-assuring price premia, and it relies on consumers knowing the cost functions of firms. In the present article, consumers do not know any firm's cost of producing quality goods, so firms with a low cost of producing high quality engage in conspicuous spending to demonstrate they earn a profitable mark-up over cost. Complete rent dissipation does occur if such firms have the same cost of producing low-quality items as other firms that are worse at producing high quality.     

AN OPTIMAL MIDDLEMAN FIRM PRICE ADJUSTMENT POLICY: THE "SHORT-RUN INVENTORY-BASED PRICING POLICY"

This paper examines the optimum pricing policies of middleman firms who carry an inventory of goods bought for resale. Each period the firm in the theoretical model is required to post a price before it observes its realized demand. In disequilibrium situations, the firm's profit-maximizing pricing policy is shown to be a "short-run inventory-based pricing policy" which requires the firm to post a price below the long-run equilibrium price upon observing its actual beginning inventory level above its optimum level, and to post a price above the long-run equilibrium price upon observing its actual inventory level below its optimum level. The final section suggests that the use of such policies by middleman firms will lead to market price adjustments which are both consistent with the "law of supply and demand" and which are based on explicit maximizing behavor.     

STICKY WAGES AND IMPLICIT CONTRACTS: A TRANSACTIONAL APPROACH

Sticky wages have been explained in the recent implicit contracts literature as a risk shifting device. Risk averse employees purchase insurance via an implicit contract from risk neutral firms. This paper offers an alternative explanation of the phenomenon. Various alternative organizational forms for labor markets are analyzed from a transactions cost viewpoint. Observed labor market institutions (including sticky wages) are seen as ways to economize on transactions costs. In fact, it is argued that sticky wages would be observed even if workers were risk neutral. Thus the emphasis on risk shifting in the implicit contracts literature seems misplaced.
A fall (in price) arising from temporary distress will be attended probably with no correspondent fall in the rate of wages: for the fall in price, and the distress, will be understood to be temporary, and the rate of wages, we know, is not so variable as the price of goods.     

PEAK LOAD PRICING IN COMPETITIVE MARKETS

The paper offers an explanation for temporal price dispersion. Temporal price dispersion in the model is due neither to exogenous shifts in demand nor to price discrimination motives as shown in other papers. In this paper the explanation relies on peak-load pricing. In the model presented, consumers decide to purchase a given product in a certain time period according to the satisfaction they derive from the product at that time and to the prices and number of customers they expect at each firm and period. The demand in each period is controlled by sellers through prices. By offering different prices in different periods, sellers motivate consumers to spread themselves across periods in a profitable way. Therefore, the demand and price in each time period is determined endogeneously.     

THE NONPROFIT FIRM: A POTENTIAL SOLUTION TO INHERENT MARKET FAILURES

This article analyzes the differences in products offered by nonprofit and for-profit firms in a monopolistically competitive industry where goods are differentiated both by product attributes and by the degree to which benefits are public. Because nonprofit firms receive donations, they provide a Pareto improvement of the equilibrium product set: nonprofit firms will be less biased against goods with a high social good component than will their for-profit counterparts, hi addition, the optimal donations function which equates the nonprofit equilibrium product set to the set which maximizes societal welfare is derived.     

WHAT DOES REPUTATION REALLY ASSURE? THE RELATIONSHIP OF TRADEMARKS TO EXPECTATIONS AND LEGAL REMEDIES

Theoretical and empirical considerations suggest that trademarks guarantee more than just quality: they assure specific performance, that is, fulfillment of the specific terms of the contract. The specific performance hypothesis implies that a firm's investment in trademark capital varies directly with the damages that its customers expect to bear from a breach and the legal difficulties of obtaining compensation. The hypothesis also helps to explain why competitors of firms whose products are recalled lose wealth, why some damages allowed by law intentionally provide less than full compensation, and why firms who sell only to other firms also invest in trademarks.     

ADVERTISING AS A PRIVATELY SUPPLIED PUBLIC GOOD

In this paper we take a view of advertising and certain other nonprice competition as public goods. This leads to a new fundamental justification of the zero price distribution of advertising, coupled with a mark-up of the advertised good as a disguised form of price discrimination which approximates that required for efficient pricing of a public good. Further, we present a numerical counterexample wherein the commonly-observed zero price distribution of advertising is shown to lead to higher consumer and seller welfare than its separate sales at cost.     

Enforcement of property rights in a barter economy

If property rights to consumption goods are insecure, the incentives to trade in a barter economy are reshaped. In a pure exchange economy, we examine the case where two contestable consumption goods are vital to two agents and initial endowments follow a binary distribution. In line with the existing literature, we examine in a two-stage game how the equilibrium security of claims to property is determined. We find that, depending on the exogenous preference and appropriation-effectiveness parameters, two different regimes emerge in equilibrium: trade and appropriation, and peaceful coexistence, with the latter regime exhibiting efficiency with respect to the goods traded. However, inefficiencies arise due to the investment in defensive activities necessary to deter appropriation. Thus, we have found an endogenously determined measure for the transaction cost underlying a market which replicates the outcome of a Walrasian market.     

How age discrimination in employment affects stockholders

We analyze the impact on stock prices, and thus on stockholders, of 84 newspaper announcements regarding corporate age discrimination lawsuits. We find that, on average, initial announcements cause a 2 percent decline in stock price, a $40 million average loss in total stock value for the large firms charged. The stock price decreases are consistent with investor concerns about the firms’ ability to attract and retain good employees given the discrimination charges. Though age discrimination in employment is a pervasive and growing problem, such findings may discourage managers from engaging in discriminatory practices. The authors thank Jane Blank and Malcolm Matthew for helpful comments. This research was supported by a University of Windsor Research Board Grant.     

A GUIDE TO THE PITFALLS OF IDENTIFYING PRICE DISCRIMINATION

This paper demonstrates that plausible cost-based explanations exist for what are commonly perceived to be cases of price discrimination. We explain such commonly discussed problems as the price spreads of retail gasoline products, the "high" price of dinners at restaurants, the "high" price of popcorn at movie theaters, and the fact that airline ticket prices vary with how long the ticket is purchased before the flight's departure. Our explanations benefit from not relying on consumer ignorance or implicit collusion among numerous sellers.     

A Stochastic Monopsony Theory of the Business Cycle

Two distinct regimes, contractions and expansions, are generated in a model in which goods markets clear and all individuals are optimizing, strict wage and price takers, have fully rational expectations, and are heterogeneous in both preferences and resource endowments. Involuntary unemployment, asymmetric monetary policy effectiveness, and a changing relationship between real wages and employment over the business cycle are the result of optimizing behavior by monopsonistic, wage-setting, and price-taking firms faced with price uncertainty, an upward-sloped supply of employees, and efficiency wage behavior. Disequilibrium and involuntary unemployment can occur at the level of the individual firm's labor market.     

DESIGNED TO FAIL: THE MEDICARE AUCTION FOR DURABLE MEDICAL EQUIPMENT

We examine the theoretical properties of the auction for Medicare Durable Medical Equipment. Two unique features of the Medicare auction are (1) winners are paid the median winning bid and (2) bids are nonbinding. We show that median pricing results in allocation inefficiencies as some high‐cost firms potentially displace low‐cost firms as winners. Further, the auction may leave demand unfulfilled as some winners refuse to supply because the price is set below their cost. We also introduce a model of nonbinding bids that establishes the rationality of a lowball bid strategy employed by many bidders in the actual Medicare auctions and recently replicated in Caltech experiments. We contrast the median‐price auction with the standard clearing‐price auction where each firm bids true costs as a dominant strategy, resulting in competitive equilibrium prices and full efficiency. (JEL D44, I11, H57)     

MAKING FRIENDS TO INFLUENCE OTHERS: ENTRY AND CONTRIBUTION DECISIONS THAT AFFECT SOCIAL CAPITAL IN AN ASSOCIATION

We examine factors affecting entry and contribution to an association that provides different goods using social capital formed by heterogeneous firms that lobby in a political economy environment. We identify how associations attract the most productive firms or the least productive firms in an industry and explain how such associations differ in their intensive and extensive marginal contributions to social capital. We find that the level of regulatory stringency, association products including capital goods for members or lobbying to influence regulation, and government influenceability affect membership and contribution decisions. These results vary with firm productivity. Often, an increase in government influenceability increases social capital in associations composed of highly productive firms because they prefer to influence policy while less productive firms prefer more association‐produced production inputs. (JEL D71, D73)     

“¡Chalinas a 20 Pesos!”: Children’s Economic Ideas Developed Through Selling

This article explores the economic ideas of indigenous Triqui children who sold artisanal goods in Oaxaca, Mexico. I approached the investigation of economic ideas by focusing on the ways in which children interacted with customers while trying to sell their goods. Using observations and interviews, I found that as children tried to convince customers to buy goods, they generated spontaneous economic ideas about the value of goods. This study provides an exploratory first step to understanding children’s development of economic ideas through everyday activity and reveals nuances in economic ideas that would otherwise remain hidden.