This article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied customers who leave and word-of-mouth advertising results in more arrivals. Second, higher fixed costs can result in a higher equilibrium level of quality. Third, the particular form that word-of-mouth advertising takes can have significant effects on the market outcome. Recommendations consisting of a report of whether the consumer intends to patronize the same firm again generate an externality that is absent when actual estimates of quality are communicated.
{"title":"Reputation and product quality","authors":"W. Rogerson","doi":"10.2307/3003651","DOIUrl":"https://doi.org/10.2307/3003651","url":null,"abstract":"This article considers the role that reputation plays in assuring product quality in markets where consumers can only imperfectly judge product quality even after consumption. Three conclusions are derived. First, high quality firms have more customers because they have fewer dissatisfied customers who leave and word-of-mouth advertising results in more arrivals. Second, higher fixed costs can result in a higher equilibrium level of quality. Third, the particular form that word-of-mouth advertising takes can have significant effects on the market outcome. Recommendations consisting of a report of whether the consumer intends to patronize the same firm again generate an externality that is absent when actual estimates of quality are communicated.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"108 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1983-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133816334","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many tax systems require payment by means of fixed fees, percentages of gross revenues (royalties or ad valorem taxes), or percentages of net income (profit shares or income taxes). Even when payments due under such instruments have the same expected value, their risk-spreading properties may differ. For equal expected levies, profit-sharing is often ranked as the most effective means of risk-spreading, followed by royalty payments, and finally by fixed fees. When revenues and costs are both uncertain, however, we demonstrate that this common risk-ranking is not generally valid and discuss reasons for its breakdown.
{"title":"Risk-spreading properties of common tax and contract instruments","authors":"James K. Sebenius, P. Stan","doi":"10.2307/3003475","DOIUrl":"https://doi.org/10.2307/3003475","url":null,"abstract":"Many tax systems require payment by means of fixed fees, percentages of gross revenues (royalties or ad valorem taxes), or percentages of net income (profit shares or income taxes). Even when payments due under such instruments have the same expected value, their risk-spreading properties may differ. For equal expected levies, profit-sharing is often ranked as the most effective means of risk-spreading, followed by royalty payments, and finally by fixed fees. When revenues and costs are both uncertain, however, we demonstrate that this common risk-ranking is not generally valid and discuss reasons for its breakdown.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"13 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1982-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131266397","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article uses a game-theoretic bidding model to examine the effect of joint bidding in offshore petroleum lease auctions. We show that joint bidding increases the total social value of the lease offering and, in most cases, does not significantly decrease the percentage of social value captured by the government. These results follow from the fact that pooling of information concerning a priori unknown tract values allows for more accurate estimates. The anticompetitive effect of a reduced number of bidders tends to be offset by the well-known fact that better informed participants bid more aggressively. Our findings are striking in that the model abstracts entirely from the effects of increased entry and greater risk diversification, the two common arguments in support of joint bidding.
{"title":"Joint Bidding, Information Pooling, and the Performance of Petroleum Lease Auctions","authors":"L. Debrock, James L. Smith","doi":"10.2307/3003641","DOIUrl":"https://doi.org/10.2307/3003641","url":null,"abstract":"This article uses a game-theoretic bidding model to examine the effect of joint bidding in offshore petroleum lease auctions. We show that joint bidding increases the total social value of the lease offering and, in most cases, does not significantly decrease the percentage of social value captured by the government. These results follow from the fact that pooling of information concerning a priori unknown tract values allows for more accurate estimates. The anticompetitive effect of a reduced number of bidders tends to be offset by the well-known fact that better informed participants bid more aggressively. Our findings are striking in that the model abstracts entirely from the effects of increased entry and greater risk diversification, the two common arguments in support of joint bidding.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"77 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1982-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122280915","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study uses laboratory experiments to explore the possible consequences of a proposed rate publication policy for the domestic, dry bulk commodity transportation industry on inland waterways. The central problem is to determine the effects of a requirement that a carrier must file a proposed rate change with the Interstate Commerce Commission at least fifteen days before the rate change is to become effective. The study concludes that in laboratory markets that have many of the essential economic features of the barge industry, rate filing policies cause higher prices, lower volume, and reduced efficiency, and they hurt the small participants. Claims that rate filing policies would improve the operations of markets with these economic features are not supported by the laboratory research conducted to date.
{"title":"Rate Filing Policies for Inland Water Transportation: An Experimental Approach","authors":"J. T. Hong, C. Plott","doi":"10.2307/3003426","DOIUrl":"https://doi.org/10.2307/3003426","url":null,"abstract":"This study uses laboratory experiments to explore the possible consequences of a proposed rate publication policy for the domestic, dry bulk commodity transportation industry on inland waterways. The central problem is to determine the effects of a requirement that a carrier must file a proposed rate change with the Interstate Commerce Commission at least fifteen days before the rate change is to become effective. The study concludes that in laboratory markets that have many of the essential economic features of the barge industry, rate filing policies cause higher prices, lower volume, and reduced efficiency, and they hurt the small participants. Claims that rate filing policies would improve the operations of markets with these economic features are not supported by the laboratory research conducted to date.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1982-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133003004","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article considers a simple variable-threat model of bargaining intended to explain the unusual discontinuous strike threatened by the Major League Players Association in labor negotiations in the Spring of 1980. The model shows that, because the difference between owners' income and players' salaries varies over time, a strike of this sort can arise as an optimal threat on the part of the players. We also consider optimal lockout threats on the part of the owners. The model shows that, when no strike insurance is available, the unique Nash equilibrium of the resulting game involves both a threatened strike and a threatened lockout. However, when strike insurance is available, and in situations in which it is profitable for the owners to purchase it, the unique equilibrium involves a (possibly discontinuous) threatened strike but no threatened lockout.
{"title":"Strike Two: Labor-Management Negotiations in Major League Baseball","authors":"L. Debrock, A. Roth","doi":"10.2307/3003564","DOIUrl":"https://doi.org/10.2307/3003564","url":null,"abstract":"This article considers a simple variable-threat model of bargaining intended to explain the unusual discontinuous strike threatened by the Major League Players Association in labor negotiations in the Spring of 1980. The model shows that, because the difference between owners' income and players' salaries varies over time, a strike of this sort can arise as an optimal threat on the part of the players. We also consider optimal lockout threats on the part of the owners. The model shows that, when no strike insurance is available, the unique Nash equilibrium of the resulting game involves both a threatened strike and a threatened lockout. However, when strike insurance is available, and in situations in which it is profitable for the owners to purchase it, the unique equilibrium involves a (possibly discontinuous) threatened strike but no threatened lockout.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1981-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121669670","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A generalized simulation model for optimizing the reliability level of electrical supply is described. The model is applied to a case study of Cascavel, Brazil to determine a range of optimum reliability levels for long range electric power distribution system planning. The basis of the model is its comparison of the social benefits and costs of changes in power system reliability. The supply side costs of increasing system reliability can be determined from straight forward engineering considerations. On the demand side, the benefits of electricity users consist of cost savings from averted power failures or outages, which may be measured by the disruption of the output streams owing to idle input factors and spoilage. The results of the Cascavel case study indicate that the principal outage costs are incurred by industrial and residential consumers. This fact is reflected in the optimum design of the distribution system, with the high population density core city area and the industrial zone receiving the most reliable service. 22 references.
{"title":"Economic criteria for optimizing power system reliability levels","authors":"M. Munasinghe","doi":"10.2307/3003337","DOIUrl":"https://doi.org/10.2307/3003337","url":null,"abstract":"A generalized simulation model for optimizing the reliability level of electrical supply is described. The model is applied to a case study of Cascavel, Brazil to determine a range of optimum reliability levels for long range electric power distribution system planning. The basis of the model is its comparison of the social benefits and costs of changes in power system reliability. The supply side costs of increasing system reliability can be determined from straight forward engineering considerations. On the demand side, the benefits of electricity users consist of cost savings from averted power failures or outages, which may be measured by the disruption of the output streams owing to idle input factors and spoilage. The results of the Cascavel case study indicate that the principal outage costs are incurred by industrial and residential consumers. This fact is reflected in the optimum design of the distribution system, with the high population density core city area and the industrial zone receiving the most reliable service. 22 references.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"94 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1979-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116383378","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper presents an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers. A spatial competition comparison framework is employed, with brands assumed relatively immobile. It is argued that the industry's conduct, in which price competition is avoided and rivalry focuses on new brand introductions, tends to deter entry and protect profits. Entry into a new segment of the market in the 1970s is discussed. Relevant welfare-theoretic issues are analyzed, and it is argued that the remedy proposed by the FTC is likely to improve performance.
{"title":"Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry","authors":"R. Schmalensee","doi":"10.2307/3003584","DOIUrl":"https://doi.org/10.2307/3003584","url":null,"abstract":"This paper presents an analysis of the ready-to-eat breakfast cereal industry based on and related to the current antitrust case involving its leading producers. A spatial competition comparison framework is employed, with brands assumed relatively immobile. It is argued that the industry's conduct, in which price competition is avoided and rivalry focuses on new brand introductions, tends to deter entry and protect profits. Entry into a new segment of the market in the 1970s is discussed. Relevant welfare-theoretic issues are analyzed, and it is argued that the remedy proposed by the FTC is likely to improve performance.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1978-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117085144","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The extent of economies of traffic density in the rail freight industry is a matter of critical importance with respect to public investment in and the financial viability of the United States rail system. Certain inadequacies of previous studies of rail costs are reviewed and methodological modifications proposed. The results of an econometric analysis which incorporates these revisions are presented. The evidence strongly supports the hypothesis that significant economies of density exist, and that many of the light-density lines which comprise 40 percent of the rail system should be eliminated.
{"title":"ECONOMIES OF TRAFFIC DENSITY IN THE RAIL FREIGHT INDUSTRY","authors":"R. Harris","doi":"10.2307/3003304","DOIUrl":"https://doi.org/10.2307/3003304","url":null,"abstract":"The extent of economies of traffic density in the rail freight industry is a matter of critical importance with respect to public investment in and the financial viability of the United States rail system. Certain inadequacies of previous studies of rail costs are reviewed and methodological modifications proposed. The results of an econometric analysis which incorporates these revisions are presented. The evidence strongly supports the hypothesis that significant economies of density exist, and that many of the light-density lines which comprise 40 percent of the rail system should be eliminated.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1977-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133299813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A cartel is unstable if one or more of its members can earn higher revenues in the long run by undercutting the cartel price and expanding production. In this paper dynamic and static models of the world bauxite market are used to assess the stability of the International Bauxite Association, to suggest possible changes on the structure of the bauxite market and the future of bauxite prices.
{"title":"Cartel pricing and the structure of the world bauxite market","authors":"R. Pindyck","doi":"10.2307/3003291","DOIUrl":"https://doi.org/10.2307/3003291","url":null,"abstract":"A cartel is unstable if one or more of its members can earn higher revenues in the long run by undercutting the cartel price and expanding production. In this paper dynamic and static models of the world bauxite market are used to assess the stability of the International Bauxite Association, to suggest possible changes on the structure of the bauxite market and the future of bauxite prices.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1977-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127359417","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article explores some of the options by which the U.S. could move away from its present heavy dependence upon oil and gas toward a more diversified energy economy. Through nonlinear programming, our model incorporates both own- and cross-price elasticities of demand. In this way, it allows for price-induced interfuel substitution and energy conservation. Among the supply options studied are: direct combustion of coal to generate electricity; conversion of coal to synthetic fuels; nuclear energy -- first from the light water reactor and later from the fast breeder; hydrogen via electrolysis; and distant future technical options such as fusion and central station solar power (aggregated and described only as an "advanced technology"). Each energy source has its own cost parameters and introduction date, but is interdependent with other components of the energy sector. For example, the amount of coal consumed in electric power plants can affect the marginal cost of production -- and hence the cost of coal-based synthetic fuels for nonelectric energy. The converse is also true. Thus, it is not sufficient to look at individual technologies in isolation. We must attempt to compare their effects upon the system as a whole.
{"title":"ETA: A MODEL FOR ENERGY TECHNOLOGY ASSESSMENT","authors":"A. Manne","doi":"10.2307/3003263","DOIUrl":"https://doi.org/10.2307/3003263","url":null,"abstract":"This article explores some of the options by which the U.S. could move away from its present heavy dependence upon oil and gas toward a more diversified energy economy. Through nonlinear programming, our model incorporates both own- and cross-price elasticities of demand. In this way, it allows for price-induced interfuel substitution and energy conservation. Among the supply options studied are: direct combustion of coal to generate electricity; conversion of coal to synthetic fuels; nuclear energy -- first from the light water reactor and later from the fast breeder; hydrogen via electrolysis; and distant future technical options such as fusion and central station solar power (aggregated and described only as an \"advanced technology\"). Each energy source has its own cost parameters and introduction date, but is interdependent with other components of the energy sector. For example, the amount of coal consumed in electric power plants can affect the marginal cost of production -- and hence the cost of coal-based synthetic fuels for nonelectric energy. The converse is also true. Thus, it is not sufficient to look at individual technologies in isolation. We must attempt to compare their effects upon the system as a whole.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"744 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1976-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115414190","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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