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I. INTRODUCTION Firms that operate internationally often charge different prices for the same product in different countries. These price differences may be due to cost differences, exchange rate fluctuations, and/or price discrimination, where firms set prices based on consumers' willingness to pay for the product. There is an extensive literature on international price differences, but nearly all of this research has focused on physical goods, where arbitrage--the situation where someone buys the product from a low-price country and resells it to someone in a high-price country--tends to be relatively costly because of transaction costs (including search costs and transportation costs). There have been no empirical papers in the economics literature thus far on the arbitrage of downloadable goods. This paper looks at the case of iTunes, which sells downloadable music, videos, books, iPad and iPhone applications, and other content worldwide, and shows how the sale of iTunes gift cards above face value on the auction website eBay is linked to the arbitrage of iTunes' products. iTunes, which is operated by Apple, first started selling music downloads in 2003, and by 2008, it was the largest music retailer in the United States and the world, (1) People typically purchase products from their own country-specific iTunes stores, but not all content is available in all countries due in part to licensing restrictions and consumer preferences (e.g., iTunes does not sell music, movies, and TV shows in many countries). Prices also vary across countries, as detailed in Section III of this paper. One can easily switch to any other country's iTunes store with just a few mouse clicks--in particular, the U.S. store would seem to be a natural focal point, and it tends to have lower prices and a wider selection. However, in order to actually purchase something from the U.S. store, one needs to have either a U.S. credit card or a U.S. iTunes gift card, available in denominations ranging from $10 to $100 in the primary market through Apple and its authorized sellers such as Wal-Mart and Best Buy. As such, it can be surmised that some individuals outside the United States may be willing to purchase iTunes gift cards on eBay in order to gain access to the U.S. store. (It should be noted that iTunes' terms and conditions specify that the U.S. store's products are available only to buyers in the United States.) We can see the evidence for this through the sale of iTunes gift cards on eBay. Nearly 200 iTunes gift cards are sold daily on eBay (about 10% of all gift cards), and more than half of these iTunes gift cards sell above face value, a phenomenon that is unusual among gift cards. After discussing some background information and related literature, this paper examines more than 1,300 eBay transactions in February 2011 and finds that iTunes gift cards targeted to international buyers (which are often sent electronically) are more likely to have higher prices, controlling for seller reputation, shipping charges, and other variables. This indicates that non-U.S. buyers are willing to pay a premium for the gift cards because they are unable to obtain them otherwise. 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. This paper addresses an important issue because of the rising popularity of the sales of downloadable content worldwide; this market includes music, videos, books, video games, and applications. The Internet has also made it easier for buyers and sellers in different countries to find one another and in the case of digital products, exchange goods. If arbitrage is widespread, firms may decide to either minimize price differences between countries, stop selling in low-price countries altogether, or use the legal system or other methods to prevent arbitrage. In terms of the big picture, this issue has implications for social welfare, copyright enforcement and international trade policies, and governments in some countries may also be concerned if their citizens have access to goods that are banned. …

I. INTRODUCTION This paper studies a situation in which cartelization serves to reduce prices and improve social welfare. The unusual outcome can be attributed to demand complementarity that exists between the goods under consideration. Because market demand functions exhibit such complementarity, a reduction in either seller's price raises the demand for the other seller's product. A cartel internalizes this cross-effect and sets prices at relatively low levels, whereas the same firms acting as rivals ignore the interdependence and set prices somewhat higher. The complementarity originates from transaction costs that customers pay in order to participate in exchange; hence, complementarity exhibits a specific mathematical form in market demand functions. One could even adopt the view that these transaction costs are the underlying circumstance that makes collusion socially more attractive than rivalry. Another feature that must be mentioned is firms' use of "two-part tariffs." Under this pricing scheme the customer pays a seller an entrance fee to obtain the privilege of purchasing merchandise, then also pays a per-unit price on merchandise actually obtained. In the context of two-part tariffs, the paper's main finding can be stated as follows: The sum of entrance fees facing customers is smaller when sellers form a cartel than when they set prices independently; however, per-unit prices are the same whether sellers collude or not. This model with transaction costs appropriately describes a geographical marketplace, such as a shopping mall or central business district, in which potential customers face expenses for transportation. Within the centralized shopping area, a department store assesses customers an annual fee for the privilege of shopping (this is the store's entrance fee) in addition to per-unit prices on merchandise. A health spa next door imposes membership dues and pay-as-you-go fees on its services. A theater sells passes (another type of entrance fee) that entitle holders to special rates on movies attended later. A similar situation is tourism, in which case the tourist encounters expenses when traveling to a vacation or convention site. At this location hotels charge a daily entrance fee for lodging plus something additional for each meal and telephone call. Rental cars are available for a fixed charge plus an added price per mile driven. Entertainment (e.g., Disneyland) might be marketed through a two-part tariff as well. A different sort of transaction cost is the expense of educating oneself before being able to effectively utilize certain goods and services. Speculating in the stock market, say, requires prior study of finance and IRS rules. After paying this initial transaction cost, the ready investor encounters two-part tariffs through which related services are sold. Entrance fees might take several forms: a stock broker levies an annual maintenance charge on accounts; an advisory service's newsletter is available at a fixed subscription rate; a mutual fund charges new shareholders a roughly constant "load". It is argued below that these entrance fees would all be lower if the vendors formed a cartel. Two-part tariffs have been studied in this journal before. Murphy [1977] computes a monopolistic seller's profit-maximizing, multi-part tariff. Although the seller cannot discriminate between rich and poor customers ex ante, self-sorting occurs if the seller designs the correct price schedule. Scott and Morrell [1985] investigate a two-good monopoly that employs two-part tariffs. If one good's entrance fee must be set equal to zero (for exogenous reasons), then optimal values of the remaining price parameters hinge on the exact nature of demand interdependence. Strong results are obtained when customers are identical. Levin [1988] compares the Stackelberg, Nash, and collusive behavior of firms that employ ordinary pricing. In another journal, Stahl [1982] analyzes rivalry and collusion when buyers pay transportation costs and vendors use ordinary linear pricing. …

This paper analyzes the structure of slave prices in New Orleans from 1804 to 1862 in an attempt to shed light on such issues as the competitive nature and economic “rationality” of the slave system, the impact of the slave trade on the separation of the slave family, the extent of slave skill formation and its importance to the Southern economy, and the personal relationships between owners and slaves. The analysis is based on the Rogert Fogel and Stanley Engerman (1974) sample of New Orleans slave invoices representing over 5700 slaves sold during the years 1804 to 1862. These invoices contain a rich assortment of information detailing the characteristics and attributes of slaves sold in the market as well as the particulars of slave transactions. The data are investigated within a regression model that relates the price of slaves sold in the market to their characteristics and to other aspects of the slave sale. After discussing the data and the regression model, the paper presents general results; subsequent sections of the paper focus on questions of more particular interest.

I. INTRODUCTION Money and middlemen are frequently involved in transactions. Both play an important role in facilitating trade. To understand the medium-of-exchange role of money and middlemen, one needs to be precise about the trading frictions which lead to their existence. While many studies focus on the role of intermediaries in matching buyers and sellers,(1) qualitative uncertainty and its impediments to exchange have also been identified as important elements underlying the use of money and emergence of middlemen. For example, Brunner and Metzler [1971] claim that, in an economy where there is uncertainty about the quality of goods, intermediary institutions such as money and specialized traders can reduce the information cost. Many attempts have been made to provide theoretical frameworks of the intermediaries of exchange.(2) Recently, search-based models have been used to formalize the trading frictions and study the role of money and middlemen. For example, Kiyotaki and Wright [1993] show that the absence of double coincidence of wants in bilateral trades can give rise to a role of fiat money as a medium of exchange. Rubinstein and Wolinsky [1987] demonstrate how middlemen help to overcome the search friction. Williamson and Wright [1994] study the function of fiat money in ameliorating the trading friction caused by private information concerning the quality of consumption goods. Li [1998] uses the same informational frictions to motivate the role of middlemen.(3) However, there are no papers that have endogenous roles for these two competing institutions, money and middlemen, and it should be worthwhile to study how they interact. In Williamson and Wright [1994] generally recognizable fiat money can increase welfare in an economy with private information because it leads to agents adopting strategies that increase the probability of high-quality commodities being exchanged. The reason is that the seller recognizes money but may not recognize another commodity and therefore, people have a higher chance to get high-quality goods when they buy with money rather than barter. In Li [1998] I show in a pure barter economy that under certain circumstances, middlemen emerge endogenously to ameliorate the lemons problem in the exchange of goods. Middlemen facilitate exchange by increasing people's incentive to produce high-quality goods and by bringing consumers the trading opportunities which they might not realize without middlemen. Thus, middlemen can improve welfare despite the fact that intermediation takes away the resources that could have been employed in production. While providing explanations for the role of individual intermediary institutions, previous studies leave the following questions unanswered: given that there is only one type of trading friction, if there exists one intermediary medium of exchange, can another intermediary still play some role in overcoming the friction? To be more specific, in an economy with private information, would individuals be willing to engage in indirect exchange involving money even though there exist expert middlemen? To what extent can money reduce the function of middlemen? Can the use of generally recognizable fiat money reduce people's incentive to invest in a quality verification technology and become middlemen? To address these issues, we extend the Williamson-Wright model to study the interaction between money and middlemen in an economy with private information. The model is described as follows. Producers choose to produce high- or low-quality goods, with low-quality goods being cheaper to produce but less desirable for consumption. Agents meet randomly in pairs over time, they carry unit inventories (either high-quality goods, low-quality goods or money) and they trade when it is mutually agreeable. In any meeting, an agent may or may not recognize the quality of goods offered in trade. Hence, producers may have an incentive to take advantage of the lower cost to producing low-quality goods. …

I. INTRODUCTION Beginning with the wide-scale introduction of branded goods in the late nineteenth century, manufacturers have often tried to dictate minimum resale prices to the retail outlets carrying their products. And since roughly the same time, antitrust experts have debated why they would do so.(1) Less attention has focused on what manufacturers do when they can not impose minimum prices, even though legal obstacles have forced them to look for alternatives. So what do manufacturers do when they cannot legally set the prices their outlets charge?(2) Many antitrust officials believe they go right on setting prices, either flaunting the law or finding some means to circumvent it. Barrett [1991] quotes former New York state antitrust chief Lloyd Constantine as saying that the practice is ubiquitous, but based upon "winks and nods" rather than written agreements that could be used in court. New York Attorney General Robert Abrams [1991] argues that vertical price fixing is endemic, claiming that "antitrust officers can recount scores of tales of retailers calling our offices too scared to give their names, telling of coercion and intimidation by manufacturers' representatives and rival dealers because their prices were too low." Former FTC Commissioner Terry Calvani argues that a manufacturer practicing resale price maintenance "would have to have 'an I.Q. two points lower than a carrot' to get caught."(3) The prospects for "wink and nod" resale price maintenance are not hard to appreciate. For example, suppose a manufacturer wants to impose a $500 sanction on any discount outlet. If it cannot do so overtly, it may instead impose a lump-sum charge of $500 on all outlets and ex post "reward" non-discount outlets with a $500 rebate. Given this scheme's transparency, courts, legislators, and antitrust officials should not be fooled. Yet the rebates could be indirect and discreet: they could be spread over several periods and parceled out in small quantities as compensation for point-of-sale services, to defray overhead, to pay for advertising or training, and so forth. Hence, it may be hard for outsiders to prove a link between what the manufacturer pays each retailer and that retailer's price. Moreover, in some instances antitrust officials may want an excuse to loosen the legal restrictions on resale price maintenance and may themselves wink and nod at these practices. Finally, antitrust officials cannot always (and perhaps not often) distinguish legitimate cost-sharing arrangements from maneuvers to influence resale prices. As such, they must proceed carefully. Manufacturers can employ two other legal means to fix resale prices. First, manufacturers can coordinate retailers' meet-the-competition guarantees. Antitrust experts have long believed that on occasion retailers can independently offer meet-the-competition guarantees to their customers to discourage price competition.(4) Here a manufacturer coordinates retailers' efforts by financing some or all of the meet-the-competition-related rebates they make, so in equilibrium all retailers adopt the "suggested" price. While previous models of meet-the-competition guarantees focus on tacit horizontal price-fixing, this paper examines explicit vertical price-fixing. Second, the manufacturer can persuade retailers to charge its suggested price by guaranteeing the margins of those victimized by price-cutting rivals. In equilibrium, no outlet wants to cut price first, so discounting does not occur at all. Manufacturers have various other means to influence their dealers' resale prices. In addition to such well-known instruments as consignment sales and exclusive territories, manufacturers can agree to buy back dealers' unsold inventories or parcel out merchandise only as demand for it materializes. They can also use devices such as markdown allowances to influence when and by how much dealers discount if demand turns out low. Presumably, this list does not exhaust the possibilities for innovative manufacturers seeking to subsidize dealers that cooperate and to discriminate against those that do not. …

I. INTRODUCTION Price ceilings in practice are often quite different from the standard textbook version. This paper analyzes price ceilings in Communist countries. They are characterized by the existence of a privileged group, namely members of the Communist Party. Price ceilings in many less developed countries are similar to those in Communist countries. II. THE NON-DISCRIMINATORY PRICE CEILING There are two groups of consumers, members of the Communist Party and Others. Figure 1 shows MARKET DEMAND and the demand of Party members, PARTY DEMAND. In equilibrium the price is $4 and 24 units are produced. Party members consume 9 units and Others consume 15 units. Then the government imposes a price ceiling of $3, as shown. Because of the ceiling, only 16 units are supplied. Consumers compete for these 16 units until the cost per unit to consumers is equal to the demand price of $6. The ticket price on the item is still the official price ceiling and that is the price the suppliers receive, but demanders pay the ticket price, $3 per unit, plus the cost of the time spent waiting in line, which is equivalent to another $3 per unit. The price ceiling is inefficient. The Dead Weight Loss is area C plus D plus E. Area C, or $21 ($3 x 7), is the Transaction Cost imposed on Party members. It is the value of the time Party members spend waiting in line. Area D, or $27 ($3 x 9), is the Transaction Cost imposed on Others. It is the value of the time Others spend waiting in line. The combined Transaction Cost is C plus D, or $48 ($3 x 16). Area E is the production cost of the ceiling. It arises from the fact that the quantity produced declines from 24 to 16. The Consumers' Surplus of Party members is area A and the Consumers' Surplus of Others is B. The Producers' Surplus is the hatched area. The price ceiling makes the consumer surpluses and the producer surplus smaller; it makes everybody worse off. III. THE DISCRIMINATORY PRICE CEILING Price ceilings create shortages. Because consumers are not able to buy as much as they would like at the posted price, there is need for a mechanism to control who may buy and how much each may buy. The scheme we just considered implicitly assumed that rationing was on a "First come, first serve" basis. In fact, the rationing scheme used in Communist countries (and in many Third World countries) is more complicated--and more efficient--than that. Recall that the scheme discussed above resulted in waiting lines and imposed additional buying costs of $3 per unit on all consumers. We know from Figure 1 that 16 units are offered for sale. In Communist countries those 16 units are allocated this way: The store shelves are stocked with the 16 units and Party members are allowed into the stores first and can buy as many units as they want at the official price of $3. When the Party members are done the Others are allowed in and must compete for the units that are left. Panel 1 of Figure 2 shows the demand curve of Party members, PARTY DEMAND. At the official price of $3, Party members choose to buy 10 units. Party members don't have to wait in lines; they incur no Transaction Cost at all. For Party members, the price is lower and the Consumers' Surplus is larger than they would be in the absence of a price ceiling. Because of their privileged status Party members benefit from the price ceiling and have an interest in maintaining it. The Other group is not so lucky. Panel 2 shows the demand curve for Others, OTHER DEMAND. Since 16 units are supplied in total and Party members buy 10, there are only 6 units left for the others. From the point of view of the Others there is a fixed stock of 6 units, as shown. Others compete among themselves for the 6 units until the cost per unit is $7. For Others, the full price is higher and the Consumers' Surplus is smaller than they would be in the absence of a price ceiling. Others have an interest in removing the price ceiling. …

The FTC initially considered two forms of regulation in the used automobile market, requiring dealers to either certify or warrant the mechanical condition of each automobile sold. Since the regulation would have been imposed only on dealers and not on private sellers, its effectiveness was dependent on the magnitude of the induced shift of sales into the private market. Accordingly, this paper employs a gametheoretic model to examine the theoretical conditions under which society could be expected to benefit from either regulatory alternative. Among other things, it is concluded that a socially beneficial minimum quality standard may not exist in some situations.

Is there any private contractual mechanism which can reduce premature innovation? Vertical integration of inventors and manufacturers is shown to be an answer. So is exclusive dealing between inventors and manufacturers: the prospect of getting ahead of other manufacturers and the fear of being left behind would induce a manufacturer to contract for an inventor's output. Inventors, assured of markets for their results, can focus more on the quality than on the completion dates of their work. The paper examines contractual remedies for premature innovation consistent with the idea of competition. The analysis develops from the conventional “rushing” model. First it is shown that self-interest of consumers, manufacturers and inventors contradicts the intrinsic consequences of the rushing model. Correction requires exclusive commitments by manufacturers to the innovating results of winning inventors. Second it is hypothesized that vertical integration of inventors with production facilities of manufacturers is a form of prior commitment discouraging premature innovation. Viewed this way, an entry-barrier raised by brand-name advertising may not be entirely undesirable.

Buyers demand continuing information flows to guide their choices among competing product brands. They select portfolios of information types, some supplied by sellers of the branded goods, some not. This paper investigates the determinants of businesses' outlays on information (media advertising, sales force, other sales promotion). They include buyers' overall demands for information, buyers' access to sources not controlled by the seller, the relative efficiency of seller-supplied information, and competitive conditions in the product market. The hypotheses about effects on sellers' total information outlays are strongly supported. Some evidence appears on determinants of the mixture of information types they provide.