How Market Power Affects Dynamic Pricing: Evidence from Inventory Fluctuations at Car Dealerships

2021 ◽  
Author(s):  
Ayelet Israeli ◽  
Fiona Scott-Morton ◽  
Jorge Silva-Risso ◽  
Florian Zettelmeyer
Keyword(s):  
Market Power ◽  
Dynamic Pricing ◽  
Profit Margin ◽  
Retail Industry ◽  
Inventory Level ◽  
Ceteris Paribus ◽  
Short Supply ◽  
Transaction Prices

This paper investigates empirically the effect of market power on dynamic pricing in the presence of inventories. Our setting is the auto retail industry; we analyze how automotive dealerships adjust prices to inventory levels under varying degrees of market power. We first establish that inventory fluctuations create scarcity rents for cars that are in short supply. We then show that dealers’ ability to adjust prices in response to inventory depends on their market power, that is, the quantity of substitute inventory in their selling area. Specifically, we show that the slope of the price–inventory relationship (higher inventory lowers prices) is significantly steeper when dealers find themselves in a situation of high rather than low market power. A dealership with high market power moving from a situation of inventory shortage to a median inventory level lowers transaction prices by about 0.57% ceteris paribus, corresponding to 32.5% of dealers’ average per-vehicle profit margin or $145.6 on the average car. Conversely, when competition is more intense, moving from inventory shortage to a median inventory level lowers transaction prices by about 0.35% ceteris paribus, corresponding to 20.2% of dealers’ average per-vehicle profit margin or $90.9. To our knowledge, we are the first to empirically show that market power affects firms’ ability to dynamically price. This paper was accepted by Juanjuan Zhang, marketing.

Agroholdings and land rental markets: a spatial competition perspective

2020 ◽  
Author(s):  
Marten Graubner ◽  
Igor Ostapchuk ◽  
Taras Gagalyuk
Keyword(s):  
Market Power ◽  
Spatial Competition ◽  
Empirical Support ◽  
Land Markets ◽  
Eastern European ◽  
Ceteris Paribus ◽  
Equilibrium Prices ◽  
Land Rental ◽  
Rental Markets ◽  
Eastern European Countries

Abstract With the emergence of large, horizontally integrated farm enterprises especially in Eastern European countries, the question arises whether these agroholdings exercise market power in (local) land markets. Using a theoretical framework of spatial competition that accounts for the presence of multi-farm agroholdings, we derive equilibrium prices under alternative spatial competition settings. Based on the investigation of Ukrainian farms, we provide theoretical explanations and empirical support for farms affiliated with an agroholding possessing (ceteris paribus) more land and setting higher land rental prices compared to independent farms. The results indicate that agroholdings may act as price leaders in local land markets.

scholarly journals Market Power in Output and Emissions Trading

Games ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 43
Author(s):  
Francisco J. André ◽  
Luis Miguel de Castro
Keyword(s):  
Market Power ◽  
Emissions Trading ◽  
Strategic Behavior ◽  
Cournot Model ◽  
Ceteris Paribus ◽  
Dominant Firm ◽  
Initial Allocation ◽  
Permit Price ◽  
Permit Allocation ◽  
Output Market

This article focuses on the strategic behavior of firms in the output and the emissions markets in the presence of market power. We consider the existence of a dominant firm in the permit market and different structures in the output market, including Cournot and two versions of the Stackelberg model, depending on whether the permit dominant firm is a leader or a follower in the output market. In all three models, the firm that dominates the permit market is more sensitive to its initial allocation than its competitor in terms of abatement and less sensitive in terms of output. In all three models, output is decreasing and the permit price is increasing in the permit dominant firm’s initial allocation. In the Cournot model, permit dominance is fruitless in terms of output and profit if the initial allocation is symmetric. Output leadership is more relevant than permit dominance since an output leader always tends to, ceteris paribus, produce more and make more profit whether it also dominates the permit market or not. This leadership can only be overcompensated for by distributing a larger share of permits to the output follower, and only if the total number of permits is large enough. In terms of welfare, Stackelberg is always superior to Cournot. If the initial permit allocation is symmetric, welfare is higher when the same firm dominates the output and the permit market at the same time.

Antecedents of Hospital Ownership Conversions, Mergers, and Closures

2003 ◽  
Vol 40 (1) ◽  
pp. 39-56 ◽  
Author(s):  
Frank A. Sloan ◽  
Jan Ostermann ◽  
Christopher J. Conover
Keyword(s):  
Market Power ◽  
Profit Margin ◽  
Government Ownership ◽  
Hospital Ownership ◽  
Hospital Mergers ◽  
For Profit ◽  
Profit Status

This study assesses the determinants of conversions in hospital ownership from 1986 through 1996. To place such changes in context, we also analyze causes of hospital mergers and closures, which are often alternatives to hospital ownership conversion. A consistent result from our analysis is that an important antecedent of ownership conversions is a low profit margin. Conversions from private nonprofit or government ownership to for-profit status are preceded by chronically low margins and high debt-to-asset ratios. By contrast, conversions from for-profit ownership occur quickly following declines in margins. Many mergers seem motivated by a desire to increase market power—a consideration not evident for conversions.

scholarly journals Dynamic Pricing and Production Control of an Inventory System with Remanufacturing

2015 ◽  
Vol 2015 ◽  
pp. 1-8 ◽  
Author(s):  
Chunyan Gao ◽  
Yao Wang ◽  
Liang Xu ◽  
Yi Liao
Keyword(s):  
Dynamic Pricing ◽  
Production Control ◽  
Inventory System ◽  
Base Stock ◽  
Inventory Level ◽  
Optimal Pricing ◽  
Customer Demand ◽  
Threshold Policy ◽  
Base Stock Policy ◽  
Stock Policy

We consider optimal pricing and manufacturing control of a continuous-review inventory system with remanufacturing. Customer demand and product return follow independent Poisson processes. Customer demand is filled by serviceable product, which can be either manufactured or remanufactured from the returned product. The lead times for both manufacturing and remanufacturing are exponentially distributed. The objective is to maximize the expected total discounted profit over an infinite planning horizon. We characterize the structural properties of the optimal policy through the optimality equation. Specifically, the optimal manufacturing policy is a base-stock policy with the base-stock level nonincreasing in the return inventory level. The optimal pricing policy is also a threshold policy, where the threshold level is nonincreasing in the return inventory level.

scholarly journals The Implementation of E-Commerce Dynamic Rate to Generate Room Revenue

2019 ◽  
Vol 1 (1) ◽  
pp. 34-54
Author(s):  
Putu Rian Arde Surya ◽  
◽  
Dewa Made Suria Antara ◽  
Ni Gst Nym Suci Murni ◽  
Ni Luh Ayu Kartika Yuniastari Sarja ◽  
...  
Keyword(s):  
Dynamic Pricing ◽  
Descriptive Analysis ◽  
Profit Margin ◽  
Analysis Techniques ◽  
Travel Agents ◽  
Rate Structure ◽  
Analysis Technique ◽  
The Mean ◽  
Collection Methods ◽  
Better Than

This study aims to determine the e-commerce dynamic rate structure to generate room revenue and the better implementation between dynamic rate and the static rate at a 3 star hotel in Kuta, Bali. Data collection methods used in this research as follows: interviews, observation, and documentation. The data analysis technique used is the mean analysis technique, dynamic pricing method, profit margin ratio, and descriptive analysis techniques. The results of the study showed the step by step of dynamic rate structure determination and the dynamic rate is better than the static rate. This is indicated by the results of the average profit margin ratio in 2016-2018 on the dynamic rate at 39.41% compared to the static rate at 2.00%. Based on the results of the analysis, any efforts that can be made are paying attention to the dynamic rate during decreasing the Price Points (PP), thus avoiding complaints from offline travel agents and implement the dynamic rates for offline travel agents, hence generate profits with a greater profit margin ratio for the hotel

scholarly journals “We’ll Always Have Paris”: Out-of-Country Buyers in the Housing Market

2020 ◽  
Author(s):  
Dragana Cvijanović ◽  
Christophe Spaenjers
Keyword(s):  
Housing Market ◽  
Causal Effect ◽  
Search Costs ◽  
Ceteris Paribus ◽  
Bargaining Process ◽  
Investment Timing ◽  
Real Estate Markets ◽  
Transaction Prices ◽  
Property Prices ◽  
Asset Selection

Previous research has shown that nonlocal household investors make suboptimal asset selection and market timing decisions. However, in real estate markets, heterogeneity in returns can exist even with identical ex ante investment (timing) choices, given that transaction prices are the outcome of a complex search-and-bargaining process. Analyzing notarial data for the Paris housing market, we find that “out-of-country” buyers indeed buy at higher prices and resell at substantially lower prices than do local investors, ceteris paribus. Furthermore, our evidence suggests that this pattern is not due to higher search costs and information asymmetries but instead stems from wealth-related differences in bargaining intensity. Finally, we estimate the causal effect of out-of-country demand shocks on property prices in Paris to be positive but small. This paper was accepted by Tomasz Piskorski, finance.

scholarly journals Multiperiod Dynamic Pricing and Inventory Control Decisions for an Omnichannel BOPS Retailer with Reference Price Effects

2021 ◽  
Vol 2021 ◽  
pp. 1-21
Author(s):  
Yuan Li
Keyword(s):  
Inventory Management ◽  
Dynamic Pricing ◽  
Reference Price ◽  
Planning Horizon ◽  
Sensitivity Analyses ◽  
Inventory Level ◽  
Management Problem ◽  
Optimal Decisions ◽  
Price Effects ◽  
Joint Pricing

This paper utilizes the consumers’ reference price in prospect theory to analyze an omnichannel retailer’s multiperiod pricing and inventory management problem in which consumers can cancel their orders before payment and return the products after payment if the products do not meet their expectation. The omnichannel retailer’s optimal equilibrium pricing and ending inventory level are derived under reference price effects by maximizing the discounted total profit over the infinite planning horizon, where the optimal decisions we discussed under two scenarios: loss neutrality and loss aversion. The analysis shows that the convergence of the pricing and ending inventory level toward their equilibrium is from above or below, depending on the relative location of the initial reference price with respect to the unique equilibrium price. Moreover, a set of sensitivity analyses is discussed to characterize the impacts of system parameters on the optimal decisions. This research fills the gap of behavioral operation in the field of omnichannel joint pricing and inventory management.

Retail supply chain service levels: the role of inventory storage

2016 ◽  
Vol 29 (6) ◽  
pp. 887-902 ◽  
Author(s):  
Asif Salam ◽  
Farhad Panahifar ◽  
P.J. Byrne
Keyword(s):  
Supply Chain ◽  
Customer Service ◽  
Service Level ◽  
Retail Industry ◽  
Inventory Level ◽  
Content Type ◽  
Service Levels ◽  
Product Availability ◽  
Customer Service Level ◽  
The Relationship

Purpose In today’s competitive retail industry the most critical success factor is customer service which is indicated by product availability. It is argued that in the retail industry, product availability is an important measure of quality. The single most vital decision that every retailer needs to make is, how to maximize service level while keeping minimum inventory level. The purpose of this paper is to explain and demonstrate the relationship between inventory level and customer service level. Design/methodology/approach This study examines an inventory system utilizing a simulation model based on company data obtained from a retail fast-moving-consumer goods chain operating in Thailand. Findings The results suggest that the achievement of a responsive service level is dependent on managing an efficient supply chain in addition to logistics cost reductions. The findings also reveal the effect the inventory level has on the service level. From the findings of this study, demand variability and service level have been found to have the most significant influence on the inventory level. From the findings, it can also be shown that real and accurate information is very important for service supply chains. Practical implications The paper promotes the importance of having an appropriate inventory management policy for a retail chain which should be driven by retail companies in order to better balance inventory and service levels. Originality/value The relationship between the inventory level and customer service level lead to different outcomes at different combinations of inventory and service levels. Significant relationships were found between inventory and service levels.

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