A Simple Method for Bounding the Elasticity of Growing Demand with Applications to the Analysis of Historic Antitrust Cases

2021 ◽  
Vol 13 (4) ◽  
pp. 172-217
Author(s):  
Wallace P. Mullin ◽  
Christopher M. Snyder
Keyword(s):  
Demand Curve ◽  
Market Equilibrium ◽  
Demand Elasticity ◽  
Simple Method ◽  
Demand Elasticities ◽  
Narrow Region ◽  
Homogeneous Product ◽  
Demand Curves ◽  
Minimal Data ◽  
Over Time

We propose a simple method, requiring only minimal data, for bounding demand elasticities in growing, homogeneous-product markets. Since growing demand curves cannot cross, shifts in market equilibrium over time can be used to “funnel” the demand curve into a narrow region, bounding its slope. Our featured application assesses the antitrust remedy in the 1952 DuPont decision, ordering incumbents to license patents for commercial plastics. We bound the demand elasticity significantly below 1 in many post-remedy years, inconsistent with monopoly, supporting the remedy’s effectiveness. A second application investigates whether the 1911 dissolution of American Tobacco fostered competition in the cigarette market. (JEL K21, L24, L65, L66, N41, N42, O34)

GIFFEN EFFECT MODEL

2020 ◽  
Vol 10 (7) ◽  
pp. 1228-1245
Author(s):  
V.I. Tsurikov ◽  
Keyword(s):  
Consumer Choice ◽  
Demand Curve ◽  
Aggregate Demand ◽  
Negative Slope ◽  
Individual Values ◽  
Effect Model ◽  
Demand Curves ◽  
Income Individual ◽  
The Mathematical Model

The mathematical model of the Giffen effect proposed in the article clearly demonstrates both the effect itself and the reasons for its manifestation. The main advantages of the model include its extreme simplicity, which opens up access to the widest circle of readers, the use of standard methods for solving the consumer choice problem, and the most important fundamental agreement with the results of the field experiment of Jensen and Miller. The model shows that any good for which there is a more expensive substitute can be of little value. This or that good is endowed with the appropriate property by a particular consumer due to his or her own preferences, income level and prevailing prices. Any good of little value, including those that can only be consumed by a high-income individual, may turn out to be Giffen’s goods. Therefore, the consumption of Giffen’s product cannot be considered as evidence of the low standard of living of the consumer. According to the model, an increase in demand for an increasingly expensive low-value good, which is the essence of the Giffen paradox, is the result of optimizing a set of goods, i.e. the result of rational consumer behavior. It is shown that for the manifestation of the Giffen effect, it is necessary that the amount of funds allocated by the consumer for the purchase of a low-value good and its more expensive substitute falls into a certain rather narrow range of values. The failures of numerous and long-term studies aimed at detecting empirical manifestations of Giffen behavior in various historical events are explained by the fact that the corresponding analysis was carried out on the basis of averaged rather than individual values of demand for all categories of consumers. As a result, the negative slope of the aggregate demand curve turned out to be dominant over the positive sections of certain individual demand curves.

scholarly journals Sex Differences in Demand for Highly Palatable Foods: Role of the Orexin System

2020 ◽  
Author(s):  
Linnea R Freeman ◽  
Brandon S Bentzley ◽  
Morgan H James ◽  
Gary Aston-Jones
Keyword(s):  
Sex Differences ◽  
Demand Curve ◽  
Female Rats ◽  
Demand Elasticity ◽  
Male Rats ◽  
Neural Activation ◽  
Palatable Food ◽  
Behavioral Economic ◽  
Male And Female Rats

Abstract Background The prevalence of eating disorders, including binge eating disorder, is significantly higher in women. These findings are mirrored by preclinical studies, which indicate that female rats have a higher preference for palatable food and show greater binge-like eating compared with male rats. Methods Here, we describe a novel within-session behavioral-economic paradigm that allows for the simultaneous measurement of the intake at null cost (Q0) and normalized demand elasticity (α) of 3 types of palatable food (low fat, high fat, and chocolate sucrose pellets) via demand curve analysis. In light of evidence that the orexin (hypocretin) system is critically involved in reward and feeding behaviors, we also examined the role of orexin function in sex differences of economic demand for palatable foods. Results The novel within-session behavioral-economic approach revealed that female rats have higher intake (demand) than males for all palatable foods at low cost (normalized to body weight) but no difference in intake at higher prices, indicating sex-dependent differences in the hedonic, but not motivational, aspects of palatable food. Immediately following behavioral-economic testing, we observed more orexin-expressing neurons and Fos expression (measure of recent neural activation) in these neurons in female rats compared with male rats. Moreover, the orexin-1 receptor antagonist SB334867 reduced both low- and high-cost intake for palatable food in both male and female rats. Conclusions These findings provide evidence of higher demand at low prices for palatable food in females and indicate that these behavioral differences may be associated with sexual dimorphism in orexin system function.

scholarly journals EVOLUTION OF THE PRODUCTION AND PRICE OF FOREST BIOMASS FOR ENERGY

FLORESTA ◽  
2018 ◽  
Vol 49 (1) ◽  
pp. 011
Author(s):  
Thiago Manoel Sozinho ◽  
David Alexandre Buratto ◽  
Anadalvo Juazeiro Dos Santos ◽  
João Carlos Garzel Leodoro da Silva ◽  
José Roberto Frega
Keyword(s):  
Energy Production ◽  
Demand Curve ◽  
Supply And Demand ◽  
Forest Biomass ◽  
The State ◽  
Planted Forests ◽  
Native Forests ◽  
Demand Curves ◽  
The Right ◽  
Biomass For Energy

This study aimed to analyze the evolution of the production and price of biomass from native and planted forests of the state of Paraná (Brazil), between 1998 and 2015, based on the behavior of the prices of the products, according to variations of their supply or demand. The annual rates for growth of the price and quantity produced were calculated and related to the displacements of the supply and demand curves of the products. The results indicated a decrease in the quantity and an increase in the biomass price for native forests, which caused a shift in the supply curve to the left. For the biomass of planted forests, the demand curve shifted to the right due to the demand increase of this product for energy production. The behavior of both curves indicated a substitution of the biomass from native forests to biomass from planted forests due to factors related to the increase of environmental protection regarding the native forests located in the state of Paraná

scholarly journals Estimating Strawberry Attributes’ Market Equilibrium Values

HortScience ◽  
2017 ◽  
Vol 52 (5) ◽  
pp. 742-748
Author(s):  
Jong Woo Choi ◽  
Chengyan Yue ◽  
James Luby ◽  
Shuoli Zhao ◽  
Karina Gallardo ◽  
...  
Keyword(s):  
Demand Curve ◽  
Supply And Demand ◽  
Mixed Logit ◽  
Market Equilibrium ◽  
Mixed Logit Model ◽  
Logit Models ◽  
Total Revenue ◽  
Mixed Logit Models ◽  
Equilibrium Prices ◽  
Social Surplus

We conducted choice experiments with both strawberry producers and consumers. Consumer and producer willingness to pay (WTP) for the fruit attributes were estimated using mixed logit models. Through simulation using the mixed logit model results, we derived the market equilibrium prices, supply and demand curve, as well as quantities demanded and supplied for every fruit attribute. We found the highest equilibrium price was for strawberry internal color followed by flavor. Strawberry breeders can use the information when setting breeding targets, allocating resources appropriately during their breeding process and focusing on the improvement of attributes that produce the highest social surplus and total revenue.

scholarly journals How COVID-19 lockdown has impacted demand curves of Croatia and surrounding countries

2021 ◽  
Vol 70 (1) ◽  
pp. 7-13
Author(s):  
Igor Vidić ◽  
Matija Melnjak ◽  
Davor Bošnjak
Keyword(s):  
Demand Curve ◽  
Electricity Consumption ◽  
Electrical Energy ◽  
Stable Operation ◽  
Daily Routine ◽  
Total Consumption ◽  
Global Pandemic ◽  
Demand Curves ◽  
Electricity Load ◽  
Restrictive Measures

Electrical energy is a specific commodity because it can’t be stored in significant quantities, so accurate day-ahead forecasting of total consumption plays a crucial role in stable operation of the whole power system. In order to maintain the adequacy, power generation and electricity consumption have to be constantly in a balance. Electricity demand curve is very sensitive and vulnerable to a lot of different factors that can be categorized in several main groups that include social, stochastic and weather dependent factors. In condition of global pandemic caused by COVID 19, prediction of total consumption is even more challenging task. New restrictive rules, that completely changed behavior of consumers, their daily routine and habits, have been adopted in most of the European countries. Hence, this lockdown restrictive measures affected the volume of electricity consumption and the shape of demand curves as well. This paper analyzes some of the cases with very variable electricity load, due to volatile households’ behavior, on cases of Croatia and countries in the region. Additionally, results are compared with the electricity load of Italy and Sweden whose economy and industry are well developed. Consumption of Sweden was interesting to observe because of its totally different approach of mitigating corona virus, without lockdown restrictions.

Empirical Analysis of Long-Run Elasticities and Asymmetric Effects of Transit Demand Determinants

2020 ◽  
Vol 2674 (8) ◽  
pp. 274-284
Author(s):  
Lisa Li ◽  
Dena Kasraian ◽  
Amer Shalaby
Keyword(s):  
Policy Making ◽  
Demand Elasticity ◽  
Transit Planning ◽  
Dynamic Panel Model ◽  
Transit Service ◽  
Demand Elasticities ◽  
Transit Ridership ◽  
Long Run ◽  
Short Run ◽  
Transit Agencies

The effects of transit ridership determinants can be quantified as demand elasticities which are often used to inform transit planning and policy making. This study seeks to determine the impacts of transit service supply, fare, and gas prices on ridership by quantifying the short-run and long-run demand elasticities, as well as test whether transit ridership exhibits an asymmetric response to the rise and fall of these factors using a panel data of 99 Canadian transit agencies over the period of 2002–2016. The results of the dynamic panel model show the effects of transit service and fare to be greater in the long run. The short-run fare elasticity was found to be –0.24 while the long-run elasticity was –1.1. Furthermore, the demand elasticity with respect to service levels was also found to be inelastic (0.28) in the short run but elastic (1.3) in the long run. The cross-elasticity of gas prices was estimated to be 0.17. The existence of asymmetry was analyzed using decomposition techniques to separately estimate the coefficients for the rise and fall in each of the determinants. The equality of these coefficients was tested against each other and it was found that ridership responded more to an increase in transit supply than a decrease. The importance of these results to policy making are then discussed.

Evaluation of the Recreational Benefits of Major Dams in Queensland, Australia

1989 ◽  
Vol 21 (2) ◽  
pp. 229-235
Author(s):  
G. L. Fahey
Keyword(s):  
Demand Curve ◽  
Recreational Facilities ◽  
Travel Costs ◽  
Demand Curves ◽  
Curve Method ◽  
Recreational Benefits

This paper describes the use of the “Final Clawson Demand Curve” method in the evaluation of the recreational benefits of four major dams in Queensland, Australia. The use of existing demand curves to predict the demand for recreational facilities at proposed sites was also investigated. The results indicate that the demand curves are sensitive to changes in variables such as travel costs. However, within the method is the potential to provide estimates of the recreational worth of proposed dams.

Capital accumulation and growth in Hungary, 1924–2006

2011 ◽  
Vol 61 (2) ◽  
pp. 143-164 ◽  
Author(s):  
B. Leeuwen ◽  
P. Földvári
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Capital Accumulation ◽  
Physical Capital ◽  
Volume Index ◽  
Growth Accounting ◽  
Simple Method ◽  
Long Run ◽  
Over Time

The objective of this paper is to analyse the role of both human and physical capital in economic growth in Hungary during the 20th century by extending the already available data on physical and human capital. Besides the standard measure for the volume of human capital, we develop a simple method to estimate the value of the human capital stock in Hungary between 1924 and 2006. While the volume index slowly grows over time, the value of human capital shows a decline during the late socialist period. Applying the value of human capital in a growth accounting analysis, we find that the Solow residual has no long-run effect on economic growth anymore.

scholarly journals Health shock and preference instability: assessing health-state dependency of willingness-to-pay for corrective eyeglasses

2019 ◽  
Vol 9 (1) ◽  
Author(s):  
Muhammed Nazmul Islam ◽  
Atonu Rabbani ◽  
Malabika Sarker
Keyword(s):  
Consumer Preferences ◽  
Demand Curve ◽  
Consumer Surplus ◽  
Cost Benefit ◽  
Demand Elasticity ◽  
Health State ◽  
Refractive Errors ◽  
State Dependency ◽  
Health Shock ◽  
Matching Techniques

Abstract Background Differences in contingent valuation (CV) estimates for identical healthcare goods can cast considerable doubt on the true economic measures of consumer preferences. Hypothetical nature of CV methods can potentially depend on the salience, context and perceived relevance of the good or service under consideration. Thus, the high demand elasticity for healthcare goods warrants careful selection of study population as the contexts of valuation significantly changes after experiencing health shock. Methods In this study, using triple-bounded dichotomous choice (TBDC) experiments, we test how negative health shock (namely, being diagnosed with refractive errors), can alter preference over a common health good (namely, corrective eyeglasses). We compared elicited WTP of diagnosed patients with a synthetically constructed comparable cohort without the same health shock, controlling for the possible self-selection using a number of matching techniques based on the observable socio-demographic characteristics. Results The consumers diagnosed with vision problems exhibit a rightward shift in their demand curve compared to observationally identical consumers without such problems resulting in about 17% higher consumer surplus. The consumers without the health shock are willing to pay about BDT 762.4 [95% CI: BDT 709.9 - BDT 814.9] for corrective eyeglasses, which gets 15–30% higher for the matched with-health-shock consumers. Multivariable analyses suggest more educated and wealthier individuals are willing to pay respectively BDT 208 and BDT 119 more for corrective eyeglasses. We have tested the models for different matching protocols. Our results are fairly robust to alternate specifications and various matching techniques. Conclusion The preferences for healthcare goods, such as eyeglasses, can significantly depend upon the respondent being diagnosed with refractive errors. Our findings have implications for general cost-benefit analyses often relying on WTP, which can vary depending on the contexts. There are also increasing interests in cost recovery models, which require understanding the demand for healthcare goods and services. We find eliciting the demand needs to consider the health status of the population from which the respondents are sampled.

Comparison of four contingent valuation methods to estimate the economic value of a pneumococcal vaccine in Bangladesh

2008 ◽  
Vol 24 (04) ◽  
pp. 481-487 ◽  
Author(s):  
Rebekah R. Heinzen ◽  
John F. P. Bridges
Keyword(s):  
Pneumococcal Vaccine ◽  
Demand Curve ◽  
Dichotomous Choice ◽  
Elicitation Method ◽  
Payment Card ◽  
Bidding Game ◽  
Elicitation Methods ◽  
Demand Curves ◽  
Elicitation Format ◽  
Choice Method

Objectives:To compare four contingent valuation elicitation methods as a means to estimate the value of a pneumococcal vaccine in Bangladesh and to test if the elicitation methods are subject to bias and if they produce valid responses.Methods:Three hundred sixty-one households with at least one child under 5 years of age were recruited in Dhaka, Bangladesh. Subjects were cluster-randomized to various elicitation methods: open-ended, dichotomous choice (at one of two asking prices), payment card (one of two cards with differing ranges). The dichotomous choice method was then followed up with a bidding game methodology, with the dichotomous choice price acting as the starting price for the bidding game. Analysis focused on summary statistics, demand curve estimation and multivariate regression analysis to test for validity and bias.Results:Thirty-one households refused to participate, leaving a total of 330 participating households (a 91.4 percent response rate). Willingness to pay estimates varied significantly across the methods (p< .001), with average estimates varying between $2.34 and $18 (US). The open-ended elicitation method was found to produce highly inflated values that were insensitive to construct validity tests. The dichotomous choice method produced quantity (demand) estimates rather than value estimates, and there was some evidence of yea saying. The payment card elicitation method was found to be affected by range bias. The bidding game elicitation method was found to be less sensitive to starting point bias and yea-saying.Conclusions:Different elicitation format do give rise to different demand curves; however, this may be partially due to the fact that they do not measure the same outcome. For example, the dichotomous choice format produces a demand curve, while the payment card, open-ended and bidding game produce inverse demand curves. All formats are prone to multiple biases. When choosing an elicitation format, it is important to first consider the purpose and use of the data. Each elicitation method has strengths and weaknesses and can be used for different purposes in technology assessment.

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