Prices,Markups, and Trade Reform

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi‐product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity‐based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory‐gate prices and that output tariff declines have the expected pro‐competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass‐through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.     

Information Frictions in Trade

It is costly to learn about market conditions elsewhere, especially in developing countries. This paper examines how such information frictions affect trade. Using data on regional agricultural trade in the Philippines, I first document a number of observed patterns in trade flows and prices that suggest the presence of information frictions. I then incorporate information frictions into a perfect competition trade model by embedding a process whereby heterogeneous producers engage in a costly sequential search process to determine where to sell their produce. I show that introducing information frictions reconciles the theory with the observed patterns in the data. Structural estimation of the model finds that information frictions are quantitatively important: roughly half the observed regional price dispersion is due to information frictions. Furthermore, incorporating information frictions improves the out‐of‐sample predictive power of the model.     

Pricing Decisions During Inter‐Generational Product Transition

How should companies price products during an inter‐generational transition? High uncertainty in a new product introduction often leads to extreme cases of demand and supply mismatches. Pricing is an effective tool to either prevent or alleviate these problems. We study the optimal pricing decisions in the context of a product transition in which a new‐generation product replaces an old one. We formulate the dynamic pricing problem and derive the optimal prices for both the old and new products. Our analysis sheds light on the pattern of the optimal prices for the two products during the transition and on how product replacement, along with several other dynamics including substitution, external competition, scarcity, and inventory, affect the optimal prices. We also determine the optimal initial inventory for each product and discuss a heuristic method.     

Price Incentives and Coordination in a Two‐Product Decentralized Supply Chain

We investigate pricing incentives for competing retailers who distribute two variants of a manufacturer's product in a decentralized supply chain. Under a two‐dimensional Hotelling model, we derive decentralized retailers' prices for the products, and distortions in pricing when compared to centrally optimal prices. We show that price distortions decrease as consumers' travel cost between retailers increases, due to less intense competition. However, price distortions do not change monotonically in consumers' switching cost between products within stores. To fix decentralized retailers' price distortions, we construct a two‐part pricing contract that coordinates the supply chain. We show that the coordinating contract is Pareto‐improving and analyze increase in the supply chain profit under coordination.     

Technical Note – Pricing Below Cost Under Exchange‐Rate Risk

Pricing below cost is often classified as “dumping” in international trade and as “predatory pricing” in local markets. It is legally prohibited from practice because of earlier findings that it leads to predatory behavior by either eliminating competition or stealing market share. This study shows that a stochastic exchange rate can create incentives for a profit‐minded monopoly firm to set price below marginal cost. Our result departs from earlier findings because the optimal pricing decision is based on a rational behavior that does not exhibit any malicious intent against the competition to be considered as violating anti‐trust laws. The finding is a robust result, because our analysis demonstrates that this behavior occurs under various settings such as when the firm (i) is risk‐averse, (ii) can postpone prices until after exchange rates are realized, (iii) is capable of manufacturing in multiple countries, and (iv) operates under demand uncertainty in addition to the random exchange rate.     

Optimal Pricing of Two Successive‐Generation Products with Trade‐in Options under Uncertainty

To entice consumers to purchase both current and next generation products, many manufacturers and retailers offer trade‐in programs that allow buyers of the first generation product to trade‐in the product and purchase the new generation product at a lower price. By considering the interactions between “forward‐looking” consumers and a firm when a trade‐in program is offered, we analyze a two‐period dynamic game to determine the optimal prices of two successive‐generation products in equilibrium, and examine the conditions under which trade‐in programs are beneficial to the firm. Our model incorporates market heterogeneity (valuation of the first generation product varies among the consumer population), product uncertainty (the incremental value of the new product is uncertain before its introduction), and consumers' forward‐looking behavior (consumers take future product valuation and prices into consideration when making purchasing decisions). With the trade‐in option, we show that consumers are willing to pay a price that is higher than their valuations of the current product. Furthermore, trade‐in programs are more beneficial to the firm when: (i) the durability of the current product is high; (ii) the market heterogeneity is low; or (iii) the uncertainty level (or the expected incremental value) of the new product is high. Finally, when the incremental value of the new product is more uncertain, consumers are more willing to purchase the current product because of the “option” value of the trade‐in programs and thus trade‐in programs can be more beneficial to the firm in this case.     

Behavior in Multi‐Unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions

We experimentally investigate the sensitivity of bidders demanding multiple units of a homogeneous commodity to the demand reduction incentives inherent in uniform price auctions. There is substantial demand reduction in both sealed bid and ascending price clock auctions with feedback regarding rivals' drop‐out prices. Although both auctions have the same normal form representation, bidding is much closer to equilibrium in the ascending price auctions. We explore the behavioral process underlying these differences along with dynamic Vickrey auctions designed to eliminate the inefficiencies resulting from demand reduction in the uniform price auctions.     

A Choice‐Based Dynamic Programming Approach for Setting Opaque Prices

Opaque pricing is a form of pricing where certain characteristics of the product or service are hidden from the consumer until after purchase. In essence, opaque selling transforms a differentiated good into a commodity. Opaque pricing has become popular in service pricing as it allows firms to sell their differentiated product at higher prices to regular brand loyal customers while simultaneously selling to non‐brand loyal customers at discounted prices. We use a nested logit model in combination with logistic regression and dynamic programming to illustrate how a service firm can optimally set prices on an opaque sales channel. The choice model allows the characterization of consumer trade‐offs when purchasing opaque products while the dynamic programming approach allows the characterization of the optimal pricing policy as a function of inventory and time remaining. We compare optimal prices and expected revenues when dynamic pricing is restricted to daily price changes. We provide an illustrative example using data from an opaque selling mechanism ( Hotwire.com ) and a Washington DC‐based hotel.     

Modeling Phytosanitary Risk of Unintended Commodity Use: The Example of U.S. Potato Exports to Mexico

Diversion of commodities from their intended use to an unintended use, e.g., when commodities intended for consumption are used as seed for planting, is an important issue in agricultural trade that has implications for the establishment of pests and pathogens in an importing country and for the appropriate strength of plant health measures. Consequently, understanding and accurately characterizing the risk of diversion from intended use is highly relevant to policymakers, trading partners, and in trade dispute arbitration. To our knowledge, no risk assessments have ever accounted for the likelihood of diversion from intended use. Here we present an approach to analyzing this risk using diversion of U.S. table stock potatoes to seed for planting by Mexican potato producers as a case study. We use probabilistic pathway models to characterize the movement of white, yellow, and russet potatoes from the United States into Mexico at current and double export volumes. We then model the likelihood of these potatoes being diverted for seed and the subsequent establishment of bacteria, nematode, and virus pests in Mexico. Our approach demonstrates how diversion from intended use can be quantified in one scenario and, in particular, how it can be analyzed to estimate the magnitude of diversion required to produce a high risk of pest establishment.     

价格与技术不确定条件下的发电商碳捕获投资模型及分析

碳捕获与储存技术是降低碳排放的有效方法之一。论文针对碳价和碳捕获技术不确定的情况,构建双重不确定条件下的碳捕获技术投资模型,并在模型求解基础上进行了数值仿真分析,其分析结果表明:1)碳价的波动性将延迟碳捕获技术投资,若碳价的波动性足够大,发电商会选择不投资;2)碳捕获技术进步也将延迟投资,但政策性补贴将抵消该投资延迟。     

Product Differentiation,Multiproduct Firms,and Estimating the Impact of Trade Liberalization on Productivity

This paper studies whether removing barriers to trade induces efficiency gains for producers. Like almost all empirical work which relies on a production function to recover productivity measures, I do not observe physical output at the firm level. Therefore, it is imperative to control for unobserved prices and demand shocks. I develop an empirical model that combines a demand system with a production function to generate estimates of productivity. I rely on my framework to identify the productivity effects from reduced trade protection in the Belgian textile market. This trade liberalization provides me with observed demand shifters that are used to separate out the associated price, scale, and productivity effects. Using a matched plant–product level data set and detailed quota data, I find that correcting for unobserved prices leads to substantially lower productivity gains. More specifically, abolishing all quota protections increases firm‐level productivity by only 2 percent as opposed to 8 percent when relying on standard measures of productivity. My results beg for a serious reevaluation of a long list of empirical studies that document productivity responses to major industry shocks and, in particular, to opening up to trade. My findings imply the need to study the impact of changes in the operating environment on productivity together with market power and prices in one integrated framework. The suggested method and identification strategy are quite general and can be applied whenever it is important to distinguish between revenue productivity and physical productivity.     

Global Maize Trade and Food Security: Implications from a Social Network Model

In this study, we developed a social network model of the global trade of maize: one of the most important food, feed, and industrial crops worldwide, and critical to food security. We used this model to analyze patterns of maize trade among nations, and to determine where vulnerabilities in food security might arise if maize availability was decreased due to factors such as diversion to nonfood uses, climatic factors, or plant diseases. Using data on imports and exports from the U.N. Commodity Trade Statistics Database for each year from 2000 to 2009 inclusive, we summarized statistics on volumes of maize trade between pairs of nations for 217 nations. There is evidence of market segregation among clusters of nations; with three prominent clusters representing Europe, Brazil and Argentina, and the United States. The United States is by far the largest exporter of maize worldwide, whereas Japan and the Republic of Korea are the largest maize importers. In particular, the star‐shaped cluster of the network that represents U.S. maize trade to other nations indicates the potential for food security risks because of the lack of trade these other nations conduct with other maize exporters. If a scenario arose in which U.S. maize could not be exported in as large quantities, maize supplies in many nations could be jeopardized. We discuss this in the context of recent maize ethanol production and its attendant impacts on food prices elsewhere worldwide.     

Wirkungsweise von Combined-Currency Prices – Eine theoretische und empirisch experimentelle Analyse

Over the last few years, programs to enhance customer retention have strongly increased in popularity. Thus, a growing number of artificial currencies such as bonus points or miles have been created. In consequence, many products and services today can be paid by using a combination of real (e.g. Euro) and artificial currencies. These combined-currency prices offer marketers many possibilities to design prices. Yet, research dealing with the effects of such combined-currency prices is scarce. Therefore, our study addresses the effect of combined-currency prices on consumers' perception of prices purchase behaviour. Moreover, we analysed how such effects can be explained by taking into account important concepts of the field of price psychology. Our experimental results demonstrate that combined-currency prices strongly influence consumers' perception of price fairness. Particularly if planning to increase prices or when designing prices for bonus programs, marketers should therefore favour combined-currency prices instead of one-dimensional prices.     

WORKERS,WARRIORS, AND CRIMINALS: SOCIAL CONFLICT IN GENERAL EQUILIBRIUM

We incorporate appropriation activities (social conflict) into canonical models of trade and study how economic shocks and policies affect the intensity of conflict. We show that not all shocks that could make society richer reduce conflict: positive shocks to labor‐intensive industries diminish conflict, while positive shocks to capital‐intensive industries increase it. The key requirement is that conflict activities be more labor intensive than the economy as this determines how shocks affect the returns and costs of conflict. Our theory is consistent with several observed patterns of conflict and implies that empirical work should take into account the relative factor intensities of the productive and conflict sectors in each country. Incorporating appropriation into a canonic general equilibrium model affects what policies may be deemed desirable: in order to reduce conflict and generate Pareto‐improvements policy must be distortionary, while reforms that appear efficiency‐enhancing under the unrealistic assumption of perfect property rights may backfire. This offers one explanation for why reforms based on traditional models without appropriation may be delayed and become unpopular when implemented, and why societies may sympathize with seemingly inefficient redistribution.     

管理层股权激励与企业未来盈余定价——来自中国资本市场的证据

本文探讨管理层股权激励对企业未来盈余定价的影响,并进一步将企业未来盈余分解为行业成分和公司特质成分,考察股权激励对不同成分未来盈余定价的影响,以及不同模式股权激励对上述关系影响的差异。利用实施股权激励的中国A股上市公司2006-2016年间的数据,本文发现：（1）股权激励提高了当期股票收益率与企业未来盈余的相关性。说明管理层股权激励有助于投资者对企业未来盈余定价;（2）管理层股权激励并不影响投资者对行业成分未来盈余定价,但会加速投资者对公司特质未来盈余定价;（3）管理层的股票型激励有助于投资者对企业未来盈余定价,同时也能加速投资者对公司特质未来盈余定价,但股票期权激励并无上述作用。研究结果意味着,整体而言股权激励能够缓解管理层与股东之间信息披露的代理问题,激励管理层向外部投资者披露更多高质量的公司基本面信息,从而降低投资者对公司特质未来盈余信息的搜寻成本,最终通过加速公司特质未来盈余信息融入股价来促进投资者对企业未来盈余定价。本文揭示了管理层股权激励促进投资者对企业未来盈余定价的微观机制,同时,研究结论对提高中国证券市场的信息效率提供了重要的理论参考。     

投资者结构、交易失衡与商品期货市场的价格发现效率

基于上海期货交易所铝、铜、橡胶和燃料油期货合约两种投资者结构的分账户数据,分析不同类型投资者交易失衡对我国商品期货市场收益、价格发现与波动的影响。结果表明:(1)个人投资者和投机者的交易失衡暗示其寻找最佳买多或卖空时点的能力不足,存在明显的过度自信、过度投机和羊群行为,加剧商品期货价格波动;(2)机构投资者和套期保值者常常表现出与个人投资者和投机者相反的交易意愿,他们能够较好地把握买入与卖出时机,且更愿意冒险持有头寸,有助于缓解商品期货价格波动;(3)商品期货价格的变动趋势表明机构投资者和套期保值者具有一定的信息优势,能够在一定程度上预测商品期货价格的未来走势,他们极其乐观或悲观的交易失衡可以向商品期货市场传递有效的信息和时间信号。因此,提高机构投资者和套期保值者的成交量(持仓量)比例,优化投资者结构,可以有效促进我国商品期货市场的价格发现,降低期货价波动风险。此外,大型投机者的交易活动也可以在一定程度上缓解商品期货价格波动。     

Information Acquisition and Voluntary Disclosure in an Export‐Processing System

We study a strategic information management problem in the export‐processing trade, where the buyer controls the raw material input and sales and the producer is responsible for production. The production is vulnerable to random yield risk. The producer can exert a costly effort to acquire the private yield rate information and discretionarily share it with the buyer. We develop a sequential Bayesian game model that captures three key features of the system—endogenous information endowment, voluntary disclosure, and ex post information sharing—a significant departure from the literature. The optimal disclosure strategy is driven by the trade‐off between the gains from Pareto efficiency improvement and self‐interested overproduction. It is specified by two thresholds on yield rate: only the middle‐yield producers (with yield rate between these two thresholds) share private information to improve supply‐demand match; the low‐ and high‐yield producers withhold information to extract excess input from the buyer. The buyer in response penalizes nondisclosure with reduced input and rewards information sharing with a larger order. This strategic interaction is further exacerbated by the double marginalization effect from decentralization, resulting in severe efficiency loss. We examine the effectiveness of three corrective mechanisms—vertical integration, mandatory disclosure, and production restriction—and reveal the costs of information suppressive effect and overinvestment incentive and the benefit from concessions on the processing fee. Our study endogenizes the asymmetric supply risk and provides the first attempt to rationalize the strategic interactions of informational and operational incentives in the export‐processing system.     

Exploring the Impact of Delivery Performance on Customer Transaction Volume and Unit Price: Evidence from an Assembly Manufacturing Supply Chain

This study examines the effect of delivery performance on customer transactions. We propose that different delivery performance dimensions (on‐time delivery rate, early delivery inaccuracy, late delivery inaccuracy, and delivery speed) have varying impacts on future customer transaction quantities and unit prices. We further explore the effect of customer types on the proposed relationships. Trade customers (resellers) and Original Equipment Manufacturer (OEM) customers generally have different operational needs for deliveries and therefore may value these metrics differently. Using instrumental variable regression, we analyze a proprietary transaction‐level dataset. The information was compiled by a Fortune 500 manufacturer from its Heating, Ventilation and Air Conditioning (HVAC) control product supply chain, consisting of the manufacturer and its customers. The results indicate that measures of delivery performance affect customer transaction quantity and unit price differently. Furthermore, these impacts can differ significantly between trade customers and OEM customers. These findings provide fine‐grained insights about tuning delivery capabilities to increase sales volume or boost price.     

COMPETING MATCHMAKING

We study how matchmakers use prices to sort heterogeneous participants into competing matching markets and how equilibrium outcomes compare with monopoly in terms of prices, matching market structure, and sorting efficiency under the assumption of complementarity in the match value function. The role of prices to facilitate sorting is compromised by the need to survive price competition. We show that price competition leads to a high‐quality market that is insufficiently exclusive. As a result, the duopolistic outcome can be less efficient in sorting than the monopoly outcome in terms of total match value in spite of servicing more participants. (JEL: C7, D4)     

Centralized versus Decentralized Competition for Price and Lead‐Time Sensitive Demand

We study two firms that compete on price and lead‐time decisions in a common market. We explore the impact of decentralizing these decisions, as made by the marketing and production departments, respectively, with either marketing or production as the leader. We compare scenarios in which none, one, or both of the firms are decentralized to see whether decentralization can be the equilibrium strategy. We find that under intense price competition, with intensity characterized by the underlying parameters of market demand, firms may suffer from a decentralized structure, particularly under high flexibility induced by high capacity, where revenue‐based sales incentives motivate sales/marketing to make aggressive price cuts that often erode profit margins. In contrast, under intense lead‐time competition, a decentralized strategy with marketing as the leader can not only result in significantly higher profits, but also be the equilibrium strategy. Moreover, decentralization may no longer lead to lower prices or longer lead‐times if the production department chooses capacity along with lead‐time.