Modeling global pricing and launching of new drugs

Doctorado en Economía: Aplicaciones a las finanzas y seguros, a la economía sectorial, al medio ambiente y a las infraestructuras.

Non-Linear Pricing in Imperfectly Competitive Markets

This thesis is dedicated to the analysis of non-linear pricing in oligopoly. Non-linear pricing is a fairly predominant practice in most real markets, mostly characterized by some amount of competition. The sophistication of pricing practices has increased in the latest decades due to the technological advances that have allowed companies to gather more and more data on consumers preferences. The first essay of the thesis highlights the main characteristics of oligopolistic non-linear pricing. Non-linear pricing is a special case of price discrimination. The theory of price discrimination has to be modified in presence of oligopoly: in particular, a crucial role is played by the competitive externality that implies that product differentiation is closely related to the possibility of discriminating. The essay reviews the theory of competitive non-linear pricing by starting from its foundations, mechanism design under common agency. The different approaches to model non-linear pricing are then reviewed. In particular, the difference between price and quantity competition is highlighted. Finally, the close link between non-linear pricing and the recent developments in the theory of vertical differentiation is explored. The second essay shows how the effects of non-linear pricing are determined by the relationship between the demand and the technological structure of the market. The chapter focuses on a model in which firms supply a homogeneous product in two different sizes. Information about consumers' reservation prices is incomplete and the production technology is characterized by size economies. The model provides insights on the size of the products that one finds in the market. Four equilibrium regions are identified depending on the relative intensity of size economies with respect to consumers' evaluation of the good. Regions for which the product is supplied in a single unit or in several different sizes or in only a very large one. Both the private and social desirability of non-linear pricing varies across different equilibrium regions. The third essay considers the broadband internet market. Non discriminatory issues seem the core of the recent debate on the opportunity or not of regulating the internet. One of the main questions posed is whether the telecom companies, owning the networks constituting the internet, should be allowed to offer quality-contingent contracts to content providers. The aim of this essay is to analyze the issue through a stylized two-sided market model of the web that highlights the effects of such a discrimination over quality, prices and participation to the internet of providers and final users. An overall welfare comparison is proposed, concluding that the final effects of regulation crucially depend on both the technology and preferences of agents.

Pricing in stochastic-local volatility models with default

In recent years is becoming increasingly important to handle credit risk. Credit risk is the risk associated with the possibility of bankruptcy. More precisely, if a derivative provides for a payment at cert time T but before that time the counterparty defaults, at maturity the payment cannot be effectively performed, so the owner of the contract loses it entirely or a part of it. It means that the payoff of the derivative, and consequently its price, depends on the underlying of the basic derivative and on the risk of bankruptcy of the counterparty. To value and to hedge credit risk in a consistent way, one needs to develop a quantitative model. We have studied analytical approximation formulas and numerical methods such as Monte Carlo method in order to calculate the price of a bond. We have illustrated how to obtain fast and accurate pricing approximations by expanding the drift and diffusion as a Taylor series and we have compared the second and third order approximation of the Bond and Call price with an accurate Monte Carlo simulation. We have analysed JDCEV model with constant or stochastic interest rate. We have provided numerical examples that illustrate the effectiveness and versatility of our methods. We have used Wolfram Mathematica and Matlab.

Increasing Utilization of US Electric Grids via Smart Technologies: Integration of Load Management, Real Time Pricing, Renewables, EVs and Smart Grid Sensors

Electric power grids throughout the world suffer from serious inefficiencies associated with under-utilization due to demand patterns, engineering design and load following approaches in use today. These grids consume much of the world’s energy and represent a large carbon footprint. From material utilization perspectives significant hardware is manufactured and installed for this infrastructure often to be used at less than 20-40% of its operational capacity for most of its lifetime. These inefficiencies lead engineers to require additional grid support and conventional generation capacity additions when renewable technologies (such as solar and wind) and electric vehicles are to be added to the utility demand/supply mix. Using actual data from the PJM [PJM 2009] the work shows that consumer load management, real time price signals, sensors and intelligent demand/supply control offer a compelling path forward to increase the efficient utilization and carbon footprint reduction of the world’s grids. Underutilization factors from many distribution companies indicate that distribution feeders are often operated at only 70-80% of their peak capacity for a few hours per year, and on average are loaded to less than 30-40% of their capability. By creating strong societal connections between consumers and energy providers technology can radically change this situation. Intelligent deployment of smart sensors, smart electric vehicles, consumer-based load management technology very high saturations of intermittent renewable energy supplies can be effectively controlled and dispatched to increase the levels of utilization of existing utility distribution, substation, transmission, and generation equipment. The strengthening of these technology, society and consumer relationships requires rapid dissemination of knowledge (real time prices, costs & benefit sharing, demand response requirements) in order to incentivize behaviors that can increase the effective use of technological equipment that represents one of the largest capital assets modern society has created.

Integrating Pricing and Inventory Control: Is it Worth the Effort?

In this paper we first show that the gains achievable by integrating pricing and inventory control are usually small for classical demand functions. We then introduce reference price models and demonstrate that for this class of demand functions the benefits of integration with inventory control are substantially increased due to the price dynamics. We also provide some analytical results for this more complex model. We thus conclude that integrated pricing/inventory models could repeat the success of revenue management in practice if reference price effects are included in the demand model and the properties of this new model are better understood.

The Pricing Discount for Limited Liquidity: Evidence from SWX Swiss Exchange and the Nasdaq

We investigate the pricing discount for limited liquidity. Unlike previous studies that have examined the relation between histroical returns and liquidity, ours looks directly at current stock prices. This approach requires less data and yields up-to-date information about limited liquidity discounts. We analyze data from the Swiss exchange and the Nasdaq during 1995-2001, and find a statistically and economically significant price-liquidity relation in both markets. We test the robustness of that relation with a procedure that does not rely on specific distributional assumptions. Our findings are unaffected. Accordingly, the discount suffered by the least liquid securities is about 30%.

The pricing of equity offerings

Examination of 1,600 seasoned equity offerings reveals little evidence that underwriters systematically set offer prices below the market price on the major exchanges, though they may do so for NASDAQ issues. Quick round-trip transactions in seasoned offerings are not profitable, but subscribing to an offering and holding the stock for 30 days seems to be very profitable, especially in the NASDAQ market. In addition to seasoned offerings, we analyze 250 issues of new classes of preferred stock. These issues are not underpriced.