We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity that might result from the selection of firms to certain product markets. We find that greater price adjustment costs result in greater price dispersion. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of the period. Our results are robust to many alternative empirical speciffications. We also test a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure. / Series: Department of Economics Working Paper Series

This thesis investigates consumer search behavior in different contexts and its implications on certain market outcomes. It consists of three self-contained essays. Part one investigates if people search optimally and how price promotions (such as the provision of price discounts) influence search intensity and risk-taking behavior. We start with a typical sequential search task in a finite time horizon (with exogenously determined price dispersion) as the baseline treatment. In the two experimental treatments, exogenous discounts are introduced to the search process. The treatments differ in the amount of information on the discounts revealed to the subjects. Subjects’ search behavior is roughly consistent with optimality for a risk-neutral agent, but significantly influenced by the introduction of discount vouchers. We find that subjects’ search intensity is significantly reduced if they are in a shop that offers discounts, even when the monetary benefit induced by the discount has been taken into account. This suggests that people seem to gain extra non-monetary utility from buying a discounted product. Alternatively, subjects might overestimate the value of a discount. Following the findings in part one, we focus on price-framing effects of discounts on consumer search behavior in part two. In order to isolate the price-framing effect from all other possible influences, we adopt an extremely simple two-shop search model in which a consumer who sees the price for an item in a shop has to decide either to buy it or to incur a search cost to learn the ex-ante uncertain price in a second shop. The experiment is designed such that a rational buyer should make identical decisions in the base treatment (where prices are posted as net prices in both shops) and in the experimental treatments (where the price in one of the shops is framed as a gross price with a discount, holding the net-price constant). Using structural estimation of the observed risk preferences, we find that people tend to be more risk-averse and hence buy from the initial shop more often in the discount treatments, regardless of where the discount is offered. The seemingly trivial change to a discount-framing increases the complexity of the decision problem. Subjects reveal a tendency to stick with the comparatively less complex options more frequently as the complexity of the decision problem increases. However, this bias declines with experience, as subjects become more and more familiar with the framing. In part three, we study search behavior in a market experiment, where prices are determined endogenously by human players. More specifically, we examine the behavioral factors and the underlying mechanism which drive the widely observed asymmetric price adjustment to cost shocks (in a world with costly search behavior and information asymmetry). We show that price dispersion, as well as asymmetric price adjustment to cost shocks, arises in experimental markets, even though the standard theory predicts neither. We find that after controlling all the potential theoretical factors, the observed price dispersion can be explained by the presence of bounded rational play. Under price dispersion, asymmetric price adjustment arises naturally, as it is harder for buyers to learn that a negative cost shock has taken place. Learning is much quicker after a positive shock. / Thesis (Ph.D.) -- University of Adelaide, School of Economics, 2010

This doctoral dissertation provides a framework for analyzing consumer's demand and firm's pricing strategy under a dynamic setting. The results bring new methods and empirical evidence to the existing literature within this realm. The first chapter evaluates retailers' choice of service even when service is not observed. Retailer optimization over service alters manufacturers' price setting and thus provides the required identification. Using new data containing wholesale prices from China's second largest wireless carrier, I construct and estimate a dynamic structural model including both demand and supply. I find that service has a significantly positive effect on expanding market demand; however, its impact subsides over time. I argue that this pattern provides a potential explanation for Apple's initial exclusive contract with China Unicom and subsequent contract arrangements. The second chapter is a joint work with Gautam Gowrisankaran and Marc Rysman. We develop and implement a new method for calculating price-cost margins in a durable goods environment. We study the industry of digital camcorders and analyze how margins differ across products, firms and time. We are particularly interested in the extent to which falling marginal costs explain falling prices. Using demand estimates and our new method, we generate non-parametric distributions of marginal costs that each firm expects for each product. We show that marginal cost falls dramatically by an average of $300 and that the price-cost margin is strongly correlated with quality. We also find that the market share is an important driver for the dynamic effects in our model. The last chapter investigates firm's price adjustment processes, with a particular focus on the micro-level determinants of the frequency of price changes. Using the same data as in the first chapter, I construct and estimate a model of the frequency of price adjustments within products. I find that the price of a high quality product tends to adjust more often. Older products are more likely to change price than newer ones. Also, firms are more responsive to seasonal effects than to market competition.

This extended abstract addresses index-based pricing models between shippers and carriers in strategic freight procurement. The increasingly unpredictable transportation cost developments, caused by a variety of different international crises, led to the need for shippers and carriers to find an equitable form of collaboration. Index-based pricing models are one way to regulate the price adjustment between shipper and carrier during the contract period due to cost developments. However, one obstacle to agreeing on such models is to find the correct index for the respective cost component that is adequate for both shipper and carrier and reflects the actual cost development of the carrier. In semi-structured expert interviews, we investigated which strategies are used to reflect volatile cost developments, how index-based pricing models work, and where problems are seen in this context. Furthermore, a broader study can lead to confirmation or further classification of the results. The abstract describes index-based pricing models with focus on road freight, but the mechanism will work for other transportation modes as well.

The purpose of this master’s thesis is to examine and analyse how a transfer pricing adjustment is made and how related parties should handle price adjustments from a customs perspective in Sweden. The examination includes describing the valuation methods available for transfer pricing and customs valuation with regards to related parties. In addition, the differences in connection to the valuation are described and analysed. Goods imported to Sweden must be cleared through customs: the importer presents a customs declaration to the Swedish Customs and pays customs duty. The customs duty is calculated using a customs value and customs valuation is the system that enables the importer to establish correct customs values on imported goods. Transfer pricing is the determination of prices on transactions taken place between companies belonging to the same group and has a direct effect on the income tax payable. There are six customs valuation methods that are hierarchically applied and six transfer pricing methods that are applied somewhat differently. There are similarities between the methods and most of the customs valuation methods have a corresponding transfer pricing method, or vice versa. Even if there are similarities, many factors make reconciliation of the methods difficult. Such factors are the different time for assessing the value and that the customs valuation methods are applied in a strictly hierarchical way with no possibility to choose the most suitable method. Customs duties and transfer pricing both share the same valuation concept, although interpreted differently, being that the value shall be based on the price that the parties would arrive at under open market conditions. However, relevant values on the same transaction differ significantly due to trying to be in accordance with respective rules. The differences in expectations and the conflicting interests on the outcome of the valuation lead to problems in the tax field. As a conclusion, customs valuation and transfer pricing can undeniably be described as “the two opposing and necessary sides of the same ‘coin’, whose respective values unavoidably affect the whole balance of a system of closely connected valuation”. In order for related parties to use the transaction value method, which is the superior customs valuation method, the price must not have been influenced due to their relationship. If one of two tests prescribed by law can prove that the relationship has not influenced the price, the related parties can use the transaction value method to establish the customs value. If the transaction value, for some reason cannot be used, the importer has to address other options on to how to establish the customs value. The conclusion of this master’s thesis is that related parties should include a price review clause in their contract or pricing policy. The company should notify the Swedish Customs about the provisional price and make an incomplete customs declaration. When information enabling the calculation of the customs value is available, the importer should file a complementary declaration. As an alternative, the importer should declare an open claim to the Swedish Customs arguing that the transaction value cannot be applied and, as a consequence thereof, explain in the customs value declaration why the applied customs value is correct. This thesis provides three recommendations concerning how to deal with the complications of customs valuation and transfer pricing. The first recommendation is that rules and recommendations surrounding transfer pricing and customs valuation should, to the extent possible, be harmonised. The second recommendation is that co-operation between the Swedish Tax Agency and the Swedish Customs must improve, for example through advance pricing arrangements for both transfer pricing and customs purposes, documentation requirements, and joint audits. The third recommendation is that related parties should take the same care and documentation approach for customs purposes as it does for transfer pricing. Importing companies should make a price review clause in their contract before the importation and present an incomplete customs declaration. This way, in case of adjustments, the related party is able to uphold an arm’s length standard on the price and has the possibility to use the preferred transaction value for customs purposes, if that is desirable.

<p>The purpose of this master’s thesis is to examine and analyse how a transfer pricing adjustment is made and how related parties should handle price adjustments from a customs perspective in Sweden. The examination includes describing the valuation methods available for transfer pricing and customs valuation with regards to related parties. In addition, the differences in connection to the valuation are described and analysed.</p><p>Goods imported to Sweden must be cleared through customs: the importer presents a customs declaration to the Swedish Customs and pays customs duty. The customs duty is calculated using a customs value and customs valuation is the system that enables the importer to establish correct customs values on imported goods. Transfer pricing is the determination of prices on transactions taken place between companies belonging to the same group and has a direct effect on the income tax payable. There are six customs valuation methods that are hierarchically applied and six transfer pricing methods that are applied somewhat differently. There are similarities between the methods and most of the customs valuation methods have a corresponding transfer pricing method, or vice versa. Even if there are similarities, many factors make reconciliation of the methods difficult. Such factors are the different time for assessing the value and that the customs valuation methods are applied in a strictly hierarchical way with no possibility to choose the most suitable method.</p><p>Customs duties and transfer pricing both share the same valuation concept, although interpreted differently, being that the value shall be based on the price that the parties would arrive at under open market conditions. However, relevant values on the same transaction differ significantly due to trying to be in accordance with respective rules. The differences in expectations and the conflicting interests on the outcome of the valuation lead to problems in the tax field. As a conclusion, customs valuation and transfer pricing can undeniably be described as “the two opposing and necessary sides of the same ‘coin’, whose respective values unavoidably affect the whole balance of a system of closely connected valuation”.</p><p>In order for related parties to use the transaction value method, which is the superior customs valuation method, the price must not have been influenced due to their relationship. If one of two tests prescribed by law can prove that the relationship has not influenced the price, the related parties can use the transaction value method to establish the customs value. If the transaction value, for some reason cannot be used, the importer has to address other options on to how to establish the customs value.</p><p>The conclusion of this master’s thesis is that related parties should include a price review clause in their contract or pricing policy. The company should notify the Swedish Customs about the provisional price and make an incomplete customs declaration. When information enabling the calculation of the customs value is available, the importer should file a complementary declaration. As an alternative, the importer should declare an open claim to the Swedish Customs arguing that the transaction value cannot be applied and, as a consequence thereof, explain in the customs value declaration why the applied customs value is correct.</p><p>This thesis provides three recommendations concerning how to deal with the complications of customs valuation and transfer pricing. The first recommendation is that rules and recommendations surrounding transfer pricing and customs valuation should, to the extent possible, be harmonised. The second recommendation is that co-operation between the Swedish Tax Agency and the Swedish Customs must improve, for example through advance pricing arrangements for both transfer pricing and customs purposes, documentation requirements, and joint audits. The third recommendation is that related parties should take the same care and documentation approach for customs purposes as it does for transfer pricing. Importing companies should make a price review clause in their contract before the importation and present an incomplete customs declaration. This way, in case of adjustments, the related party is able to uphold an arm’s length standard on the price and has the possibility to use the preferred transaction value for customs purposes, if that is desirable.</p>

This study investigates the market conditions under which the Greek manufacturing sectors operate, and provides a formal measurement and determination of the observed degree of rigidity in nominal prices using panel modelling techniques. Two parameters in particular are found to capture the essence of market imperfections and price rigidity arising from various sources: the first parameter is conjectural variation elasticity which defines the degree of market divergence from perfect competition; and the last parameter refers to the speed of price adjustment towards the equilibrium level, which is estimated along with a set of important factors that affect this parameter. The data sample of this research consists of 56 3-digit manufacturing sectors, as defined by Eurostat (NACErev2) over the period 1980-2012, while the econometrical approach mainly incorporates the Fixed and Random Effects Model for panel data. The estimation process is divided into four steps: in the first step, the degree of market power and the speed of price adjustment are estimated for the whole manufacturing industry; in the second step, the same process is reiterated for the 3-digit sectors individually; in the third step the estimations are conducted for each year over 1980-2012; in the last step, the effects of a set of variables on the speed of price adjustment are estimated in order to provide an adequate interpretation of how market imperfections and price rigidities can be formed and how they relate to each other. By using the Greek economy as a case study, the empirical results provide significant evidence of a degree of market power similar to the one of a duopoly accompanied by relatively slow price adjustment in the 56 manufacturing sectors and the 33 years over 1980-2012.

Purpose: The purpose is to investigate and analyse the impact of intra-organizational purchasing synergy on periodic price adjustment (PPA) process. Specifically, paper provides a view on how  purchasing process synergy through an operational IT platform can increase process reengineering opportunities within PPA.  Methodology: So, to fulfil the purpose of the research, the in-depth case study approach is chosen as a strategy that goes along with exploratory nature of the study, aimed at gaining rich insights in the context in which the phenomenon happens. Findings: The findings emphasize the importance of global process standardization and balanced governance among regional affiliates in successful implementation of PPA process synergy. We also identify a set of specific process reengineering needs  in PPA such as company wide information sharing,  standardization of part specifications and cost bases, and joint world-wide cost reduction activity within global buyer community (BGC). Then it is observed that all these process reengineering initiatives will not be possible without solid and flexible IT infrastructure  to improve buyer productivity and support their further development.   Research limitations/implications: Primarily, this study was conducted on single in-depth case study which makes it difficult to completely generalize the findings. Next, there are many factors impacting intra-organizational pricing processes besides global synergy projects. In fact, regional and organizational contexts are of high importance, which are addressed but not analysed in detail in the current study.   Practical implications: Together, the findings contribute to our understanding of the step-by-step pricing activity from industrial customer perspective and how buyers can improve cost competitiveness through various tangible and commercial part cost reduction activities.   Originality/value: Current study has addressed the pricing process from industrial customer perspective. It has two main theoretical contributions: (1) Detailed step-by-step description of PPA process between OEMs and their suppliers happening after SOP; and (2) groundwork for implementation guidance on intra-organizational price revision process synergy.

DISSERTATION - Abstract in English Three Essays on Electricity Markets Author: PhDr. Petra Luňáčková Academic Year: 2017/2018 This thesis consists of three papers that share the main theme - energy. The articles introduce characteristics and behavior of electricity focusing on its unique properties. The dissertation aims at the Czech electricity market and analyzes also highly discussed solar power plants. The first article studies long term memory properties of electricity spot prices through the detrended fluctuation analysis, as electricity prices are dominated by cycles. We conclude that Czech electricity prices are strongly mean reverting yet non-stationary. The second part of the dissertation investigates possible asymmetry in the gas - oil prices adjustment. Oil prices determine the price of electricity during the times of peak demand, as the reaction of power plants fueled by oil is quick but marginal costs are high. We chose the gasoline - crude oil relationship known as "rockets and feathers" effect and offer two new tests to analyze such type of relationship as we believe that error correction model is not the most suitable tool. Analyzing international dataset we do not find statistically significant asymmetry. The third study assesses the impact of renewable energy sources, solar plants in...

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