Many disputes between buyers and sellers concern product quality and whether a claim of poor product performance is covered by a warranty issued by the seller. We develop an analytical framework in which average product quality, buyer preferences, production and transaction costs, and the extent to which "true" quality can be observed by buyer and seller interact to determine warranties, product price, and the likelihood of disputes. Using this framework, we examine the impact of various types of dispute resolution mechanisms (DRM's) on these outcomes. We relate features of DRM's such as cost and accuracy, to prices, warranties, and allocative efficiency of the market in which disputes arise.
{"title":"Warranties, Performance, and the Resolution of Buyer-Seller Disputes","authors":"T. Palfrey, T. Romer","doi":"10.2307/3003540","DOIUrl":"https://doi.org/10.2307/3003540","url":null,"abstract":"Many disputes between buyers and sellers concern product quality and whether a claim of poor product performance is covered by a warranty issued by the seller. We develop an analytical framework in which average product quality, buyer preferences, production and transaction costs, and the extent to which \"true\" quality can be observed by buyer and seller interact to determine warranties, product price, and the likelihood of disputes. Using this framework, we examine the impact of various types of dispute resolution mechanisms (DRM's) on these outcomes. We relate features of DRM's such as cost and accuracy, to prices, warranties, and allocative efficiency of the market in which disputes arise.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129398935","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 monopoly offering service to its customers on an interruptible basis has the option of curtailing delivery of this service when available supply falls short of demand. Shortages occur because of the stochastic nature of demand. To do this the monopolist divides the customers into classes based on some observable characteristics, and then determines the order in which service to these classes is interrupted. The order is a decision variable that influences profits and is relevant only in the stochastic framework. In addition, the monopolist discriminates among the classes on the basis of price and reliability of service. These decision variables, in turn, influence demands. An optimum policy for any ordering is one where prices, capacity, and quoted reliabilities of service maximize expected profit, and at the same time are compatible with the actual reliabilities of service. We derive some conditions for which an ordering yields the greatest profit.
{"title":"Behavior of a monopoly offering interruptible service","authors":"J. Tschirhart, F. Jen","doi":"10.2307/3003329","DOIUrl":"https://doi.org/10.2307/3003329","url":null,"abstract":"A monopoly offering service to its customers on an interruptible basis has the option of curtailing delivery of this service when available supply falls short of demand. Shortages occur because of the stochastic nature of demand. To do this the monopolist divides the customers into classes based on some observable characteristics, and then determines the order in which service to these classes is interrupted. The order is a decision variable that influences profits and is relevant only in the stochastic framework. In addition, the monopolist discriminates among the classes on the basis of price and reliability of service. These decision variables, in turn, influence demands. An optimum policy for any ordering is one where prices, capacity, and quoted reliabilities of service maximize expected profit, and at the same time are compatible with the actual reliabilities of service. We derive some conditions for which an ordering yields the greatest profit.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129445565","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}
{"title":"Leff's Swindling and Selling: The Spanish Prisoner & Other Bargains","authors":"R. Solow, A. A. Leff","doi":"10.2307/3003313","DOIUrl":"https://doi.org/10.2307/3003313","url":null,"abstract":"","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129487389","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}
As in many regulated industries, jurisdiction of the commission regulating the natural gas pipelines does not encompass all transactions of the regulated companies. The Federal Power Commission does not regulate direct sales of the pipelines to industry, while it does set profit limits on sales to retail gas utilities companies. If regulation is effective, the prices on the regulated sales should be different from those on the unregulated industrial transactions, all else being equal. A model is constructed here of the behavior of the firm with split regulated-unregulated sales. Thenceforth, the model is tested against a sample of paired transactions. Thenceforth, the model is tested against a sample of paired transactions in the late 1960s. The findings are that price levels on regulated sales would not appear to have been different from those on unregulated sales, after account has been taken of cost and demand differences. The effects of regulation, while in the expected direction, were insubstantial. Moreover, the differences in the institution of price setting under regulation -- in particular, the widespread use of two-part tariffs -- if anything, enhanced the ability of the pipelines to charge identical regulated and unregulated prices.
与许多受监管行业一样，监管天然气管道的委员会的管辖范围并不包括受监管公司的所有交易。美国联邦电力委员会(Federal Power Commission)并不监管天然气管道对工业的直接销售，但它对零售天然气公用事业公司的销售设定了利润限制。如果监管是有效的，在其他条件相同的情况下，受监管的销售价格应该与不受监管的产业交易价格不同。本文构建了一个销售受监管和不受监管的公司的行为模型。从那时起，该模型就会针对成对交易的样本进行测试。此后，该模型在20世纪60年代末的成对交易样本中进行了测试。研究发现，在考虑了成本和需求差异之后，受监管销售的价格水平似乎与不受监管销售的价格水平没有什么不同。监管的效果，虽然在预期的方向上，但并不显著。此外，监管下定价机制的差异——尤其是两部分关税的广泛使用——如果说有什么区别的话，那就是增强了输油管道收取受监管和不受监管的相同价格的能力。
{"title":"Relative Prices on Regulated Transactions of the Natural Gas Pipelines","authors":"P. Macavoy, R. Noll","doi":"10.2307/3003145","DOIUrl":"https://doi.org/10.2307/3003145","url":null,"abstract":"As in many regulated industries, jurisdiction of the commission regulating the natural gas pipelines does not encompass all transactions of the regulated companies. The Federal Power Commission does not regulate direct sales of the pipelines to industry, while it does set profit limits on sales to retail gas utilities companies. If regulation is effective, the prices on the regulated sales should be different from those on the unregulated industrial transactions, all else being equal. A model is constructed here of the behavior of the firm with split regulated-unregulated sales. Thenceforth, the model is tested against a sample of paired transactions. Thenceforth, the model is tested against a sample of paired transactions in the late 1960s. The findings are that price levels on regulated sales would not appear to have been different from those on unregulated sales, after account has been taken of cost and demand differences. The effects of regulation, while in the expected direction, were insubstantial. Moreover, the differences in the institution of price setting under regulation -- in particular, the widespread use of two-part tariffs -- if anything, enhanced the ability of the pipelines to charge identical regulated and unregulated prices.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129523165","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 comment presents an analysis of the effect of regulation on the sales-maximizing firm, and shows that the models used in earlier works have been incorrectly specified. It is demonstrated that under relatively weak conditions, regulation via a "fair" rate of return constraint has no influence on the behavior of the firm, and that any tendency to under-or overcapitalization would be present even if there were no regulation.
{"title":"Resource Allocation and the Regulated Firm: Comment","authors":"A. Atkinson, L. Waverman","doi":"10.2307/3003149","DOIUrl":"https://doi.org/10.2307/3003149","url":null,"abstract":"This comment presents an analysis of the effect of regulation on the sales-maximizing firm, and shows that the models used in earlier works have been incorrectly specified. It is demonstrated that under relatively weak conditions, regulation via a \"fair\" rate of return constraint has no influence on the behavior of the firm, and that any tendency to under-or overcapitalization would be present even if there were no regulation.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"88 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128192539","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}
Forcing what is essentially a hyperbolic relationship into a linear regression model can create a "hyperbolic bag." This bag takes on importance if it is systematically related to other variables in the regression model. For the case at hand, it appeared that using a linear model might overstate the effects of regulation on trucking rates because the provinces which regulate rates have either relatively short or relatively long average distances, while those which do not regulate rates have intermediate distances falling at the bottom of such a bag. The regression model was respecified to correct for this problem, and while the respecification appears unimportant, other questions are raised.
{"title":"A Further Analysis of Provincial Trucking Regulation","authors":"J. Palmer","doi":"10.2307/3003058","DOIUrl":"https://doi.org/10.2307/3003058","url":null,"abstract":"Forcing what is essentially a hyperbolic relationship into a linear regression model can create a \"hyperbolic bag.\" This bag takes on importance if it is systematically related to other variables in the regression model. For the case at hand, it appeared that using a linear model might overstate the effects of regulation on trucking rates because the provinces which regulate rates have either relatively short or relatively long average distances, while those which do not regulate rates have intermediate distances falling at the bottom of such a bag. The regression model was respecified to correct for this problem, and while the respecification appears unimportant, other questions are raised.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128649896","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 characterizes necessary and sufficient conditions for heterogeneous search goods to trade at their competitive prices, and derives policy implications from these conditions. The model differs from earlier search equilibrium models in that it allows the existence of product heterogeneity. Our principal conclusions are that markets for heterogeneous search goods tend rather easily to segment into homogeneous subsets; when they do not, heterogeneity can work against the existence of competitive equilibria because it dilutes the effectiveness of search. Nevertheless, the likelihood of competitive equilibria obtaining in heterogeneous search goods markets can often be increased by reducing the costs to consumers of directly comparing purchase alternatives.
{"title":"Competitive equilibria in markets for heterogeneous goods under imperfect information: a theoretical analysis with policy implications","authors":"Alan L. Schwartz, Louis L. Wilde","doi":"10.2307/3003439","DOIUrl":"https://doi.org/10.2307/3003439","url":null,"abstract":"This article characterizes necessary and sufficient conditions for heterogeneous search goods to trade at their competitive prices, and derives policy implications from these conditions. The model differs from earlier search equilibrium models in that it allows the existence of product heterogeneity. Our principal conclusions are that markets for heterogeneous search goods tend rather easily to segment into homogeneous subsets; when they do not, heterogeneity can work against the existence of competitive equilibria because it dilutes the effectiveness of search. Nevertheless, the likelihood of competitive equilibria obtaining in heterogeneous search goods markets can often be increased by reducing the costs to consumers of directly comparing purchase alternatives.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129588172","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}
In this paper a probability model with links to portfolio theory is constructed which, for any security, implies (1) that the expected number of transactions per unit time is a decreasing linear function of the ratio (r) of transaction cost to the security's price per share; and (2) that both the expected number of shares exchanged on any single transaction and the expected trading volume over any fixed time interval are decreasing -- but more complicated -- functions of r. The last function represents a demand function for brokers' services in the market for some security. Such functions are estimated for each of 20 common stocks, and it is found that volume is indeed measurably responsive to changes in transaction cost. The elasticity of the overall demand for brokers' services in the market for common stocks is estimated to be approximately -0.25.
{"title":"The Demand for Brokers' Services: The Relation Between Security Trading Volume and Transaction Cost","authors":"T. W. Epps","doi":"10.2307/3003195","DOIUrl":"https://doi.org/10.2307/3003195","url":null,"abstract":"In this paper a probability model with links to portfolio theory is constructed which, for any security, implies (1) that the expected number of transactions per unit time is a decreasing linear function of the ratio (r) of transaction cost to the security's price per share; and (2) that both the expected number of shares exchanged on any single transaction and the expected trading volume over any fixed time interval are decreasing -- but more complicated -- functions of r. The last function represents a demand function for brokers' services in the market for some security. Such functions are estimated for each of 20 common stocks, and it is found that volume is indeed measurably responsive to changes in transaction cost. The elasticity of the overall demand for brokers' services in the market for common stocks is estimated to be approximately -0.25.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127105643","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 performs a cross sectional analysis of firm profitability to determine whether firm investments in research and development (R&D) are a source of above-average returns. Accounting profit rates are adjusted to take account of firm capital outlays on R&D and advertising (i.e., investments in intangible capital). Then, with the use of a structure-performance regression model, these adjusted profit rates are regressed on various determinant variables including a measure of the firm's stock of R&D capital. This analysis indicates that firms in research-intensive industries earn significantly above-average returns on their R&D capital. These results are robust to alternative assumptions concerning depreciation rates and other model specification changes.
{"title":"Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates","authors":"Henry G. Grabowksi, D. Mueller","doi":"10.2307/3003585","DOIUrl":"https://doi.org/10.2307/3003585","url":null,"abstract":"This paper performs a cross sectional analysis of firm profitability to determine whether firm investments in research and development (R&D) are a source of above-average returns. Accounting profit rates are adjusted to take account of firm capital outlays on R&D and advertising (i.e., investments in intangible capital). Then, with the use of a structure-performance regression model, these adjusted profit rates are regressed on various determinant variables including a measure of the firm's stock of R&D capital. This analysis indicates that firms in research-intensive industries earn significantly above-average returns on their R&D capital. These results are robust to alternative assumptions concerning depreciation rates and other model specification changes.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"84 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127249896","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}
Willig demonstrated that in a model in which user demands are independent, a uniform price greater than marginal cost can be Pareto dominated by a nonlinear outlay schedule. However, when users are firms of different sizes which compete in final product markets, their demands must be interrelated. In such cases it may be impossible to achieve any such Pareto improvement.
{"title":"On the Nonexistence of Pareto Superior Outlay Schedules","authors":"J. Ordover, J. Panzar","doi":"10.2307/3003419","DOIUrl":"https://doi.org/10.2307/3003419","url":null,"abstract":"Willig demonstrated that in a model in which user demands are independent, a uniform price greater than marginal cost can be Pareto dominated by a nonlinear outlay schedule. However, when users are firms of different sizes which compete in final product markets, their demands must be interrelated. In such cases it may be impossible to achieve any such Pareto improvement.","PeriodicalId":177728,"journal":{"name":"The Bell Journal of Economics","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127463869","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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