Search

Growth in pharmaceutical prices is a major policy issue in the United States. Competition is encouraged to counteract such growth, yet less is known about the effect of brand competition on prices. We discover a unique feature of this market by studying the pricing strategies of incumbent drug manufacturers under tiered-insurance anticipating branded competition. Using the insulin market as a natural experiment, we exploit exogenous variation in several potential entrants' completion of clinical trials to identify the effect of drug pipeline pressure on the prices of incumbent drugs. We find that pipeline pressure exerts cumulative and significant upward pressure on prices of incumbent drugs. In the insulin market such pressure explained 10.5% of the growth of prices. We were able to replicate these findings among incumbents with other emerging biosimilars. Insurance designs that fail to promote price competition through negotiations and value-based principles may contribute to such price increases.

This study examines how the rules of origin (RoO) of a free trade agreement (FTA) affect firms' pricing strategies. The value‐added criterion (VAC) of the RoO requires firms to add more than a certain level of value within an FTA when firms use inputs originating from outside the FTA. The VAC may work as a price floor, and the resulting increases in prices can benefit all firms if it induces an offshoring firm to manipulate its output price. Meanwhile, a consumer‐hurting FTA formation is possible, even if all firms make tariff‐free exports. Furthermore, such an FTA formation may worsen total welfare.

The demand for mobile broadband services is increasing exponentially alongside with user expectations regarding the reachability of these services and their prices. This paper presents an integrated satellite and fifth generation (5G) network for providing inflight connectivity and evaluates the economic viability of offering broadband connectivity to passengers on commercial airplanes by the development of a techno-economic framework, which considers both capital and operational expenditures to compute the total cost of ownership (TCO) and an average cost per user and per Megabyte. Results show high operational costs mainly due to satellite bandwidth usage. Therefore, caching popular content on the network onboard is beneficial to reduce the traffic carried over the satellite link, thus lowering the operational costs as well. Furthermore, the framework is used to compare the identified business models for Inflight Entertainment and Connectivity offerings and their pricing strategies, alongside a benchmark against the current inflight connectivity pricing. Finally, a sensitivity analysis is elaborated in order to mitigate the uncertainty of inputs (e.g., rate of caching) used to feed the TCO model. Following concrete recommendations are the main result of this research: (1) Providing inflight broadband services with a 2-5 Mbps throughput per user is feasible if satellite communications is integrated into the 5G network. (2) Caching popular data reduces the operational costs and hence the average cost per user (from 25% to 32% depending on the caching rate adopted). (3) This framework allows to provide recommendations on the best suited business models and related pricing schemes.

Given the sweeping changes to healthcare, the issues of how to properly price both online consultations and drugs and how to tune patient volumes between online and offline platforms remain to be resolved. In this paper, with considering patient options, we have examined three relevant scenarios through game theory analyses. The optimal profits of medical supply chain players and prices of consultation and drugs are deduced from equilibrium results. With an extensive study on the relations between drug prices and patient volumes, whether and how to use pricing strategies to avoid patient congestion are discussed in three scenarios.

This study provides a better explanation for the continued prevalence of high–low (Hi–Lo) pricing strategy. We investigate the impact of market competition on adopting two different pricing strategies in the retail industry: everyday low price (EDLP) strategy and Hi–Lo strategy. We developed two analytic models using a game‐theoretic modeling approach: the profit maximization model and the sales revenue maximization model. We then conducted an econometric analysis based on retail store‐level dataset. The result shows that an EDLP player's equilibrium price depends highly on the cost level rather than competitor's price whereas the Hi–Lo player's equilibrium price depends mainly on the range of promotional basket as well as the cost level.

Confirmation bias, a well‐established behavioral anomaly, asserts that when product experience is ambiguous, it is assimilated consistent with expectations set up by prior advertising. In this paper, we combine a strategic model with laboratory experiments to study the effects of consumers’ confirmation bias on firms’ advertising and pricing strategies and its implications for firms’ profits. Our results suggest that confirmation bias does not improve firms’ profits in the short run. However, it confers benefits to products that are frequently purchased in the longer time horizon. We also show that confirmation bias‐inducing advertising can have an inverse relationship with the degree of product differentiation. Furthermore, we show that our results are robust whether confirmation bias is positive or negative, whether consumers have perfect memory or suffer from memory loss, and whether the price premium induced by confirmation bias is fixed or endogenous. Our laboratory experiments test some of these key model predictions. The studies show that individuals behave in a manner consistent with the predictions of our model.

The existence of reference price effects in consumer decision making is well documented in prior research, but few studies focus on its implications for firms’ strategic behavior. Using a competitive model, we address this gap by examining how firms’ product positioning and pricing strategies in a non‐durable goods market (where consumers repeatedly purchase products from the category) are affected compared with a benchmark situation in which reference price effects are not pertinent. In a model with internal reference price effects, we find that as the salience of reference price effect increases, (a) product differentiation first decreases and then increases; and (b) firm profits first decrease and then increase. Using data from Information Resources, Inc. (IRI) dataset, we empirically validate our findings. We contribute to the product positioning literature by uncovering the role of internal reference price effects on product positioning and profits.

This paper examines the advance selling decisions over two periods and considers future‐oriented consumers who are more concerned about the product quality than price discounts. We find that the advance selling strategy is not always best, and its merits are contingent on parameters of the market and consumers. Moreover, there is no need to set a deep advance selling discount for the retailer if consumers are highly risk averse. Next, we analyze the feasible advance selling pricing strategies for the retailer. Finally, we observe that the retailer can announce a higher advance selling price if consumers are moderately risk averse.

This article examines afresh the problem of Harrodian instability by incorporating into a post‐Keynesian growth model an additional link, first proposed by Adrian Wood (A theory of profit, 1975), between firms’ pricing policies (which determine their profit margins) and their accumulation policies. It is assumed that firms’ pricing strategies are wholly linked to their need to self‐finance some of their investments. Such a link suggests, a priori, that there is an endogenous self‐correcting force, originating at the micro‐level, that is capable of mitigating Harrodian instability. When investment increases or declines uncontrolledly, the variation in the accompanying profit margin is able to exert a contrary smoothing effect on effective demand (through changes in the multiplier). It is shown, firstly, that this effect is such that it leads to the emergence of a basin of attraction for multiple stationary growth rates. However, there is every likelihood that the growth rates in this basin of attraction will be higher than the natural growth rate (and will therefore be unsustainable in the long term). It is shown, secondly, that a sufficiently high budget deficit makes it possible to draw the convergent growth rate space towards a state of stationary equilibrium within the “sphere of the possible”. It is shown, finally, that the state has sufficient room for manoeuvre to arbitrate between competing objectives (employment–distribution–budget deficit) by virtue of the existence of a whole continuum of stationary equilibria.

The purpose of this study is to investigate the impact of auditor reputation and nonaudit services on audit pricing in the context of large private audit clients. Focusing on German large private clients, we use a low litigious audit environment that allows us to investigate the role of auditor reputation as proxied by auditor type for three auditor tiers. We find evidence for a Big 4 audit fee premium, suggesting the pronounced role of auditor reputation even in a private client segment. However, this premium is subject to the Big 4 auditor's role in the national audit market. Audit pricing is also affected by nonaudit services, which add value to the audit engagement for the client. Nonaudit fees further incentivize pricing strategies for audits of private audit clients, particularly for Big 4 auditors, which indicates a joint effect of nonaudit fees and auditor type on audit fees.

We demonstrate how innovations in insurance risk classification can lead to adverse selection, or cream skimming, against insurers that are slow to adopt such pricing innovations. Using a model in which insurers with insufficient pricing data cannot differentiate between low‐ and high‐risk policyholders and therefore charge both the same premium, we show how innovative insurers develop new risk classification data to identify overcharged low‐risk policyholders and attract them from rival insurers with reduced prices. Less innovative insurers thus insure a growing percentage of high‐risk customers, resulting in adverse selection attributable to their informational disadvantage. Next, we examine two cases in which “Big Data” innovations in risk classification led to concerns about cream skimming among U.S. auto insurers. First, we track the rapid adoption of credit‐based insurance scores as pricing variables in personal auto insurance markets. Second, we examine the growing popularity of usage‐based insurance programs like telematics, plans in which insurers use data on policyholders’ actual driving behavior to set prices that attract low‐risk customers. Issues associated with the execution of such pricing strategies are discussed. In both cases, we document how rival insurers quickly adopt successful innovations to reduce their exposure to adverse selection.

We study pricing strategies of competing firms who sell heterogeneous products to a group of customers in a social network. Goods are substitutes and each customer gains network externalities from her neighbors who consume the same products. We show that there is a unique subgame-perfect equilibrium where, first, firms choose the prices of each good for each consumer, and, then, individuals decide their consumption of the goods. We also fully characterize the equilibrium prices for any network structure, and relate these equilibrium outcomes to the familiar Katz-Bonacich network centrality measures. Contrary to the monopoly case, the equilibrium price of a customer not only depends on her own characteristics but also on others' characteristics. We show that firms price discriminate and charge lower prices to more central consumers. This means that more central consumers obtain a larger discount because of their impact in terms of consumption on their neighbors. We also show that the firms' equilibrium profits can decrease when either the network becomes denser or network effects are higher.

Effektive Preisstrategieentwicklung: Das Einsetzen von Pricing Teams in preisstrategischen Entscheidungsprozessen fur neue Produkte beeinflusst positiv die verfugbaren Informationsverarbeitungskapazitaten und erlaubt das Entwickeln einer effektiven Strategie. Zentrale Entscheidungsfelder: Fur einen optimalen Entscheidungsprozess sollten Pricing Teams so gestaltet werden, dass ein flexibler Einsatz von rational und intuitiv gesteuerter Informationsverarbeitung ermoglicht wird. Zentrale Charakteristika sind: Stabilitat und Expertise/ Erfahrung. Kontextabhangigkeit: Die effektive Gestaltung von Pricing Teams muss im Kontext des Innovationsgrades des neuen Produktes verstanden werden. Es gilt: (1) Geringes Mas an Innovation: Rationalitat ist am gewinnbringendsten: Fordern Sie rationale Informationsverarbeitung mittels Trainingsmasnahmen, stabiler Teams mit wenig Fluktuation und einer Unternehmenskultur, die Wissen und Erfahrung wertschatzt. (2) Radikale Innovation: Die Kombination von Rationalitat und Intuition ist am gewinnbringendsten: Fordern Sie Rationalitat und Intuition mittels Trainingsmasnahmen, dynamischer Teams mit regelmasiger Fluktuation und einer Unternehmenskultur, die Wissen und Erfahrung wertschatzt.

The carbon tax is a cost-efficient scheme to curb emissions, and it has been implemented in Australia, British Columbia, and other places worldwide. We aim to analyze its effect on dynamic pricing in a supply chain with multiple suppliers and one manufacturer. The profit-maximizing manufacturer makes final products using raw materials from suppliers with heterogeneous prices and emission rates. A two-stage game model is built over an infinite time horizon for this issue. In the first stage, suppliers face price-dependent demand to set their prices and production rates under the constraint of inventory capacity. Then, in response to the carbon tax scheme, the manufacturer evaluates the procurement prices and emission rates of suppliers to control its emission volumes and sets the sales price of its product. This paper predominately focuses on the optimal pricing strategies in a decentralized supply chain. The open-loop equilibrium and Markovian Nash equilibrium for the dynamic pricing game models of both suppliers and the manufacturer are derived, respectively. The equilibrium prices of suppliers and the manufacturer can be solved based on both irreversible actions and real-time states. These two types of equilibria can be regarded as the solutions of two different models in specific situations. To analyze the effect of sourcing diversity on pricing strategies and emissions control for the manufacturer, the more general equilibrium price for the manufacturer in an n-suppliers oligopoly is studied. Numerical examples are presented to illustrate the equilibrium and its monotonicity with various parameter settings.

The high prices of specialty pharmaceuticals are causing some public programs to ration care and many private insurers, including Medicare drug plans, to place specialty drugs on high cost-sharing tiers. As a result, access to these drugs is often restricted, and only a small portion of the population with a disease may receive treatment. This concern has generated a wide range of proposed solutions. We conducted a literature review and identified 52 solutions in the peer-reviewed literature that we classified into five broad categories: revising the patent system, encouraging research to increase development of new drugs, altering pharmaceutical regulation, decreasing market demand, and developing innovative pricing strategies. We discuss the rationale for these five approaches and summarize the proposed solutions. We also discuss four empirical issues that are particularly important in any discussion of policy options.

This paper studies the reference effect on dynamic pricing in revenue management for cases with limited capacity and stochastic demand. We first present a single-period fixed pricing (FP) model in finite horizon with fixed capacity and stochastic demand, and show that there is a unique optimal solution. The model is then extended to a discrete-time dynamic pricing (DP) model as a benchmark case. We subsequently propose a DP model with reference effect (DPR), investigate the properties of the revenue function, and present a computational scheme to compute the dynamic optimal price. Numerical experiments are conducted to exhibit how the reference effect may influence the initial price, pricing trend, price dispersion, and expected revenue, with the FP, DP, and DPR policies in the same environment of a fixed capacity facing stochastic demand. We also present, through numerical examples, a comparison between deterministic demand and stochastic demand scenarios under reference effect, and with a fixed initial price versus a variable initial price.

This study provides an empirical analysis of demand for a large group of ornamental plants using a theory-based demand model. Specifically, consumer preferences are represented by the Almost Ideal Demand System where allowance is made for demand censoring. Given that revealed-preference data are usually limited to certain ornamental plants and geographical locations, we exploit unique hypothetical purchase data collected via an online survey regarding 16 annual, perennial, and foliage plants from across the United States. The effect of various socio-economic and demographic factors on demand for plants is quantified. Our findings indicate that ornamental plants are predominantly price-elastic with foliage plants being more price-responsive vis-a-vis other plant categories. Further, a majority of plants are expenditure-elastic with the estimates of foliage plants manifesting the greatest variability. Finally, plants in the same category appear to be closer substitutes. Results benefit ornamental plant industry stakeholders as they determine the best pricing strategies in their specific markets.

Indoor cell phone users often suffer poor connectivity. One promising solution to this issue, femtocell technology, has been rapidly developed and deployed over the past few years. One of the biggest challenges facing femtocell deployment is the lack of a clear business model. This study investigates the economic incentive for cellular operators (also called macrocell operators) to enable femtocell service by leasing spectrum resources to independent femtocell operators. We model the interactions between a macrocell operator, a femtocell operator, and end-users as a three-stage dynamic game, and derive the equilibrium pricing and capacity allocation decisions. We show that when spectrum resources are very limited, the macrocell operator has more incentive to lease spectrum to the femtocell operator, as femtocell services can help cover more users and improve the utilization efficiency of the limited spectrum resource. However, when the total spectrum resource is large, femtocell service offers significant competition to macrocell service and, as a result, the macrocell operator has less incentive to enable femtocell service. We also show the impact of the additional operational costs and limited coverage of femtocell service on equilibrium decisions, consumer surplus, and social welfare.

This article is concerned with the determination of pricing strategies for a firm that in each period of a finite horizon receives replenishment quantities of a single product which it sells in two markets, for example, a long-distance market and an on-site market. The key difference between the two markets is that the long-distance market provides for a one period delay in demand fulfillment. In contrast, on-site orders must be filled immediately as the customer is at the physical on-site location. We model the demands in consecutive periods as independent random variables and their distributions depend on the item's price in accordance with two general stochastic demand functions: additive or multiplicative. The firm uses a single pool of inventory to fulfill demands from both markets. We investigate properties of the structure of the dynamic pricing strategy that maximizes the total expected discounted profit over the finite time horizon, under fixed or controlled replenishment conditions. Further, we provide conditions under which one market may be the preferred outlet to sale over the other. © 2015 Wiley Periodicals, Inc. Naval Research Logistics, 2015

While current pricing strategies in public theaters are mostly based on static schemes, this paper analyzes the potential of dynamic pricing. Subsidized performing arts organizations face the challenge of selling a fixed capacity (available seats of a venue) to a broad and varied audience. Based on the literature and on empirical evidence from a survey among Swiss theaters, we discuss whether and to what extent yield management and uniform-price auctions—two widespread dynamic pricing mechanisms in the Internet age—can be applied to public theaters in view of the particular goals and targets imposed by their source of funding and by subsidy contracts. Our analysis suggests that although the application of yield management may not be advantageous in the current environment, the introduction of dynamic elements (including auctions) to prevailing pricing strategies can help public theaters respond to temporal demand fluctuations and fill up performances with a varied audience. Copyright © 2015 John Wiley & Sons, Ltd.

Objective: Excessive alcohol consumption is an increasing issue internationally. Pricing strategies, including discount restrictions, have been identified as one of the most effective policy means by which to reduce heavy alcohol consumption. In Australia, cross-promotional alcohol discounts are increasingly used by supermarket chains as a marketing tool. The purpose of the present study is to provide preliminary data on the nature and extent of cross-promotional alcohol discounting in the Australian grocery sector. Methods: A purposive sample of 34 supermarkets in Australia's three largest cities was selected and minor grocery purchases made to uncover the prevalence and level of cross-promotional alcohol discounting. Results: Cross-promotional ‘bundled’ discounts were very common with 33 of the 34 supermarkets offering a ‘two for one’ discount on bottles of wine. Even with minor purchases (mean purchase $1.35), the mean value of discounts received was substantial ($16.23). Conclusions: These results appear to be consistent with claims that major supermarket chains are using alcohol discounts as loss leaders to entice new consumers. Implications: These strategies are antithetical to public health strategies aimed at reducing excessive alcohol consumption. Further examination of the impact of major retailers on public health initiatives is warranted, particularly in light of increasing retailer concentration.

This paper studies the problem of supply chain pricing and coordination with markdown policy in the presence of conspicuous consumption. A two-period pricing model is proposed to investigate the effect of conspicuous consumption on pricing decisions with markdown pricing policy for a supply chain that consists of a manufacturer and retailer. The optimal pricing strategies for the integrated supply chain and decentralized supply chain are derived respectively. Our results show that an anticipated conspicuous consumption can benefit the supply chain even though the conspicuous consumption aggravates the double marginalization effect. The conspicuous consumption can serve as a level to segment the market and can promote the supply chain revenue. In addition, our results indicate that the supply chain can benefit from rationing. We also introduce a revenue-sharing contract and prove that it can be applied to coordinate the supply chain with conspicuous consumption. An interval of the revenue-sharing rate for coordinating with the supply chain can be coordinated without any additional transfer payment being provided.

We consider a decentralized two-period supply chain in which a manufacturer produces a product with benefits of cost learning, and sells it through a retailer facing a price-dependent demand. The manufacturer's second-period production cost declines linearly in the first-period production, but with a random learning rate. The manufacturer may or may not have the inventory carryover option. We formulate the resulting problems as two-period Stackelberg games and obtain their feedback equilibrium solutions explicitly. We then examine the impact of mean learning rate and learning rate variability on the pricing strategies of the channel members, on the manufacturer's production decisions, and on the retailer's procurement decisions. We show that as the mean learning rate or the learning rate variability increases, the traditional double marginalization problem becomes more severe, leading to greater efficiency loss in the channel. We obtain revenue sharing contracts that can coordinate the dynamic supply chain. In particular, when the manufacturer may hold inventory, we identify two major drivers for inventory carryover: market growth and learning rate variability. Finally, we demonstrate the robustness of our results by examining a model in which cost learning takes place continuously

We develop a model for the demand of warrants by individual investors with regard to their sensitivity to issuer margins, defined as the relative overpricing with respect to the theoretical value. Based on an empirical data set we show that investors are relatively margin-sensitive; that is, given similar warrants from different issuers or warrants with similar characteristics, investors tend to buy those with the lowest margin. Investors are, however, not absolutely margin-sensitive; that is, demand is not influenced by the overall margin level. Our model suggests an equilibrium with different issuer pricing strategies for different warrants in such a situation. Consistent with the model's predictions, we find that issuers vary their pricing with the moneyness of a warrant. We thus give an explanation for the dependence of issuer margins on a product's moneyness, which has been documented in the literature for several retail derivative products. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:1195–1219, 2015

The existing queueing literature typically assumes that customers either perfectly know the expected waiting time or are able to form rational expectations about it. In contrast, in this article, we study canonical service models where customers do not have such full information or capability. We assume that customers lack full capability or ample opportunities to perfectly infer the service rate or estimate the expected waiting time, and thus can only rely on past experiences and anecdotal reasoning to make their joining decisions. We fully characterize the steady-state equilibrium in this service system. Compared with the fully rational benchmark, we find that customers with anecdotal reasoning are less price-sensitive. Consequently, with a higher market potential (higher arrival rate), a revenue-maximizing firm may increase the price if the service rate is exogenous, and it may decrease the price if the service rate is at the firm's discretion. Both results go against the commonly accepted pricing recommendations in the fully rational benchmark. We also show that revenue maximization and welfare maximization lead to fundamentally different pricing strategies with anecdotal reasoning, whereas they are equivalent in the fully rational benchmark.

We analyze a simple dynamic durable good model. Two incumbent sellers and potential entrants choose their capacities at the start of the game. We solve for equilibrium capacity choices and the (necessarily mixed) pricing strategies. In equilibrium, the buyer splits the order with positive probability to preserve competition, making it possible that a high and low price seller both have sales. Sellers command a rent above the value of unmet demand by the other seller. A buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

Advancing in information technology has empowered firms with unprecedented flexibility when interacting with each other. We compare welfare results in a vertical market (e.g., manufacturers and retailers) for several types of pricing strategies depending upon the following: (1) which side (retailers or manufacturers) chooses retail prices; and (2) whether there is revenue sharing or linear pricing between the two sides. Our results are as follows. Under revenue sharing, retail prices (and thus industry profits) are higher if and only if they are chosen by the side featuring less competition. Under linear pricing, however, retail prices are higher if they are chosen by the side featuring more competition (for linear demand functions). Relative to linear pricing, revenue sharing always leads to lower retail prices, higher consumer surplus and social surplus. However, the comparison on industry profits depends on the demand elasticity ratios. Revenue sharing raises industry profits when the elasticity ratios are small, but the results are reversed when the elasticity ratios are large. Copyright © 2014 John Wiley & Sons, Ltd.

Summary This paper investigates the joint choice behavior of intercity transport modes and high-speed rail cabin class within a two-dimensional choice structure. Although numerous studies have been conducted on the mode choice behavior, little is known about the influence of cabin class on their intercity traveling choice. Hence, this study is conducted with a revealed preference survey to investigate the intercity traveling behavior for the western corridor of Taiwan. The results of nested logit model reveal that a cabin strategy has a more significant influence on cabin choice than on mode choice. Furthermore, this study proposes a new strategy map concept to assist transport operators in defining and implementing their pricing strategies. The results suggest that to capture a higher market share, high-speed rail operators should choose an active price reduction strategy, while bus and rail operators are advised to implement a passive price increase strategy to raise unit revenue. Copyright © 2014 John Wiley & Sons, Ltd.

Large sunk costs of development, negligible costs of reproduction, and distribution resulting in economies of scale distinguish information goods from physical goods. Versioning is a way firms may take advantage of these properties. However, in a baseline model where consumers differ in their tastes for quality, an information goods monopolist only offers one version, and this differs from what we observe in practice. We explore formulations that add features to the baseline model that result in a monopolist offering multiple versions. We examine versioning where consumers differ in individual tastes for quality, and groups of consumers that share the same group taste are delineated by segments of individual tastes. We find that if groups have mutually exclusive characteristics — a horizontal dimension — that they value relative to the shared characteristics, then versioning is optimal. Consequently, any horizontal differentiation in product line design favors versioning. In addition, when group tastes are hierarchical such that higher taste groups value characteristics that lower taste groups value but not vice versa — a vertical dimension — as long as the valuations of the higher and adjacent lower taste group are sufficiently close, then versioning is also optimal. Our conditions, which also help determine how many versions are optimal, are based on exogenously defined parameters so that it is feasible to check them in practice.

Although online shopping is becoming popular, consumers who are unsure about whether to buy a product may find it advantageous to visit a brick-and-mortar retail store to first examine the product before purchasing it. But, after browsing at the store, consumers have the option of switching to an e-tailer to purchase the item at a cheaper price rather than buying at the store. Recent business press refers to this browse-and-switch behavior as “showrooming,” and attributes to it the declining profits of brick-and-mortar retailers. To study the effect of the browse-and-switch option on retail and online pricing strategies and profits, we analyze a stylized economic model that incorporates uncertainty in consumers' valuation of the product, captures the heterogeneity among consumers in their inclination to purchase online, and permits product returns. We consider various equilibrium scenarios for different combinations of consumer shopping behaviors, characterize the parameter ranges for each scenario, and demonstrate that browse-and-switch behavior can indeed occur under equilibrium. Our analysis further shows that the option for consumers to browse-and-switch intensifies competition, reducing the profits for both firms.

We consider a supplier selling to multiple retailers using one of two constant wholesale pricing strategies: a uniform wholesale price (UWP) vs. a retailer-specific wholesale price (RSWP). In line with the prior literature in economics, our initial finding is that as long as retailers are asymmetric, then (a) the supplier and less efficient retailer would prefer the RSWP strategy and (b) the more efficient retailer would prefer the UWP strategy. By examining the total profits of the supply chain under each pricing strategy, we present a new result: the UWP strategy results in a greater degree of supply chain efficiency as compared to the RSWP strategy. The key intuition driving this result is that by charging a UWP, the supplier signals a fair treatment for downstream retailers, which leads to the more efficient retailer being able to reduce market prices and hence capture a larger share of market demand. Noting that the supplier prefers the RSWP scheme as compared to the UWP scheme, we propose a contract which comprises two components: a UWP per unit complemented with a slotting allowance or side payment. The contract is always preferred by the supplier and also leads to greater supply chain efficiency.

This paper examines the effect of reference prices on companies operating within competitive industries. We confirm that even with competition, firms optimally price high in the short term to generate a high reference price and then decrease this price over time. Competitors' prices converge toward each other over time, emphasizing the short-term nature of reference prices. We then show that pricing optimally to take advantage of reference prices generates a positive externality for other firms in an industry, such that competitors may generate higher profit. The longer the focus of a given firm, the more profit the firm generates, but less relative to its competitors. This arises because the externalities created through pricing high to increase reference prices outweigh the benefits of the higher reference prices themselves. If pricing managers are compensated relative to their competition, this suggests that short-termism may be implicitly encouraged to the detriment of profit.

This article offers a new interpretation of the traditional Cournot complements problem, or anticommons, by using the theory of public goods to gain a perspective on the problem. Specifically, I examine the pricing strategies and regulation of multiple monopolies that produce products which consumers view as perfect complements. I show that collusion by the firms increases total social welfare and that the collusion problem can be reinterpreted as a problem of provision of public goods from the point of view of the firms. I take this insight further and derive the familiar concepts of the Samuelson marginal condition and the ratio equilibrium for the firms. I compare these outcomes to the first best solution and then apply incentive-compatible mechanisms to strategically implement the Pareto superior ratio-equilibrium outcome and the optimal marginal-cost pricing outcome. Finally, I show how this methodology can be applied to the more familiar Cournot model of oligopoly.

This paper provides an analysis of consumer preferences for product claims, specifically about origin and production methods. In particular, it addresses two important questions: i) whether consumers are willing to pay a premium for food products carrying these claims; and ii) whether local and organic claims are complements or substitutes. A choice experiment designed to estimate two-way interactions was undertaken in Spain for eggs. The findings show first, that consumers are willing to pay a positive premium price for an enhanced method of production (that of barn, free-range and/or organic instead of cage produced eggs) as well as for the proximity of production (local, regional and national over imported). Second, the findings show that consumer preferences for the claims are heterogeneous with two consumer segments being identified: “origin preference”, the larger segment, and the “production method preference”. Results show that organic and local claims were complements for the larger first segment but that free-range and local/regional claims were substitutes for the second smaller segment. These results provide the marketing chains with insights applicable for pricing strategies.

We consider a pricing and short-term capacity allocation problem in the presence of buyers with orders for bundles of products. The supplier's objective is to maximize her net profit, computed as the difference between the revenue generated through sales of products and the production and inventory holding costs. The objective of each buyer is similarly profit maximization, where a buyer's profit is computed as the difference between the time-dependent utility of the product bundle he plans to buy, expressed in monetary terms, and the price of the bundle. We assume that bundles' utilities are buyers' private information and address the problem of allocating the facility's output. We directly consider the products that constitute the supplier's output as market goods. We study the case where the supplier follows an anonymous and linear pricing strategy, with extensions that include quantity discounts and time-dependent product and delivery prices. In this setting, the winner determination problem integrates the capacity allocation and scheduling decisions. We propose an iterative auction mechanism with non-decreasing prices to solve this complex problem, and present a computational analysis to investigate the efficiency of the proposed method under supplier's different pricing strategies. Our analysis shows that the problem with private information can be effectively solved with the proposed auction mechanism. Furthermore, the results indicate that the auction mechanism achieves more than 80% of the system's profit, and the supplier receives a higher percentage of profit especially when the ratio of demand to available capacity is high.

In this study, we use a monopoly pricing model to examine the optimal pricing strategies for “pay-per-time”, “pay-per-volume” and “pay-per both time and volume” based leasing of data networks. Traditionally, network capacity distribution includes short/long term bandwidth and/or usage time leasing. Each consumer has a choice to select volume based, connection-time based or both volume and connection-time based pricing. When customers choose connection-time based pricing, their optimal behavior would be utilizing the bandwidth capacity fully, which can cause network to burst. Also, offering the pay-per-volume scheme to the consumer provides the advantage of leasing the excess capacity to other potential customers serving as network providers. However, volume-based strategies are decreasing the consumers’ interest and usage, because the optimal behaviors of the customers who choose the pay-per-volume pricing scheme generally encourages them to send only enough bytes for time-fixed tasks (for real time applications), causing quality of the task to decrease, which in turn creating an opportunity cost. Choosing pay-per time and volume hybridized pricing scheme allows customers to take advantages of both pricing strategies while decreasing (minimizing) the disadvantages of each, because consumers generally have both time-fixed and size-fixed task such as batch data transactions. However, such a complex pricing policy may confuse and frighten consumers. Therefore, in this study we examined the following two issues: (i) what (if any) are the benefits to the network provider of providing the time and volume hybridized pricing scheme? and (ii) would this offering schema make an impact on the market size? The main contribution of this study is to show that pay-per both time and volume pricing is a viable and often preferable alternative to the only time and/or only volume-based offerings for a large number of customers, and that judicious use of such pricing policy is profitable to the network provider.

This paper explores some of the concerns associated with the new group of oral anti-cancer agents from the standpoint of availability, direct costs to the patient, and pricing strategies. We sought to evaluate the availability in the United States and the United Kingdom based on approval times. We then consulted select insurance companies' websites for 2011, the online Medicare Part D donut-hole calculator, and the Cancer U.K. website for cost information. Nine oral targeted agents are approved both in the United States and United Kingdom. The date of approval was earlier in the United States compared to the United Kingdom for every medication, and Medicare patients have the highest out-of-pocket payments. Oral oncology products are available earlier in United States than in United Kingdom. Potential high out-of-pocket liability for Medicare patients is a greater obstacle to access than is the case for U.S. commercial insurance or National Health System (NHS) patients in the United Kingdom.

With the rapid development of the virtual world industry in the past few years, trading of virtual goods and services has grown significantly. Virtual goods creators can set different permissions to their creations, such as the length of usage, the ability to copy or modify a virtual good, or the ability to give the good to others. The permissions of virtual goods endow their creators with additional power to control the allocation and exchange of virtual goods in a virtual world. We examine how the unique virtual goods permission settings (copy, modify, and transfer) and other factors are associated with virtual goods prices. Using data from a Second Life marketplace, we find that permissions of virtual goods are not random, as creators strategically set the permissions for their virtual creations. Our results show that the copy and transfer permissions are significant factors associated with virtual goods prices. The impact of other factors on virtual goods prices is analyzed and managerial implications are discussed.

The paper analyzes the effect of the New York State Milk Price Gouging Law 200% rule (June 1991-October 2008) on the nature of price-transmission process and supermarket pricing strategies in the fluid whole milk market. This rule established that the retail prices of fluid milk products were not to exceed 200% of the Class I fluid milk prices that milk processors paid to dairy farmers. The enforcement of this law significantly affected the nature of the Class I fluid milk price transmission process and the whole milk pricing strategies of supermarkets in the five largest cities in New York State: New York City, Albany, Syracuse, Buffalo and Rochester. During the pre-law period, supermarkets used the retail price-stabilization strategy; a presence of the asymmetric Class I fluid milk price transmission process was evidence of this type of pricing strategy. In contrast, supermarkets used the retail profit stabilization strategy during the law period, which was reflected in the symmetric response of retail prices and marketing margins to increases and decreases in the Class I fluid milk prices. The analyzed design of retail milk price control actually created an institutional environment that facilitated cooperative conduct of supermarkets acting in an oligopolistic market environment, which caused a shift away from the retail price stabilization strategy in the pre-law period to the retail profit stabilization strategy in the law period.

This paper analyses the impact of international carbon control measures – and the absence of such measures – on Australian carbon pricing policies at both a theoretical and empirical level. While theory and interest group advocacy suggest a potential case for destination accounting of carbon emissions and border tax adjustments and/or export exemptions, this case is sometimes exaggerated. For example, in the ferrous metals sector, empirical analysis suggests that gains from such refinements are low since carbon leakages and adverse competitiveness effects are small. In other sectors – such as non-ferrous metals – the effects are more pronounced. Exaggerating the competitiveness costs of carbon pricing runs the risk of policy overreaction and unintended protectionism, dramatically increasing the costs of Australian carbon pricing policies. Providing free and tradable emission quotas to exporters and import competing sectors is a ‘second best’ policy but one with practicality in sectors where adverse competitiveness effects do need to be addressed.

This paper explores how customers' perceptions of firms' corporate social responsibility (CSR) and fairness in their pricing strategy determine customers' behaviour as users of financial services. Specifically it proposes a model where CSR and price fairness positively determine customer loyalty through satisfaction and commitment. It also proposes that the entity's social responsibility actions influence customers' price fairness evaluations. To test this model, structural equation modelling is employed on a sample of 300 customers of banks and savings banks. Results show that both CSR and price fairness contribute to achieving customer loyalty, also confirming the roles of satisfaction and commitment as mediating variables. In addition, it is also shown that CSR influences customer perceptions of price fairness, in such a way that customers perceive that socially oriented firms are also fairer in their pricing strategies. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.

This paper analyzes properties of the optimal spatial arrangement of what may be interpreted as a class of public facilities. Optimality is defined as cost minimization. Three different optimality criteria are considered, and for each, the necessary and, sufficient conditions, market area size, and production levels, are derived. The relationship between optimal production levels and number of facilities needed is also considered. Next the results of implementing various pricing strategies are analyzed with emphasis given to marginal and uniform pricing. It is shown that, given certain conditions, all facilities incur operating deficits, given marginal pricing. Estimates on the level of the deficits are derived in terms of location rents. Finally, in the appendix, several important results from other studies are derived as special cases of the basic model.