Inferring conduct under the threat of entry : the case of Brazilian cement industry

This paper demonstrates that when an industry faces potential entry and this threat of entry constrains pre-entry prices, cost and conduct are not identified from the comparative statics of equilibrium. In such a setting, the identifying assumption behind the well-established technique of relying on exogenous demand perturbations to empirically distinguish between alternative hypotheses of conduct is shown to fail. The Brazilian cement industry, where the threat of imports restrains market outcomes, provides an empirical illustration. In particular, pricecost margins estimated using this established technique are considerably biased downward, underestimating the degree of market power. A test of conduct is proposed, adapted to this constrained setting, which suggests that outcomes in the industry are collusive and characterised by market division.

Essays in Industrial Organization

This dissertation extends the empirical industrial organization literature with two essays on strategic decisions of firms in imperfectly competitive markets and one essay on how inertia in consumer choice can result in significant welfare losses. Using data from the airline industry I study a well-known puzzle in the literature whereby incumbent firms decrease fares when Southwest Airlines emerges as a potential entrant, but is not (yet) competing directly. In the first essay I describe this so-called Southwest Effect and use reduced-form analysis to offer possible explanations for why firms may choose to forgo profits today rather than wait until Southwest operates the route. The analysis suggests that incumbent firms are attempting to signal to Southwest that entry is unprofitable so as to deter its entry. The second essay develops this theme by extending a classic model from the IO literature, limit pricing, to a dynamic setting. Calibrations indicate the price cuts observed in the data can be captured by a dynamic limit pricing model. The third essay looks at another concentrated industry, mobile telecoms, and studies how inertia in choice (be it inattention or switching costs) can lead to consumers being on poorly matched cellphone plans and how a simple policy proposal can have a considerable effect on welfare.

Pricing short leases and break clauses using simulation methodology

This paper examines the changes in the length of commercial property leases over the last decade and presents an analysis of the consequent investment and occupational pricing implications for commercial property investmentsIt is argued that the pricing implications of a short lease to an investor are contingent upon the expected costs of the letting termination to the investor, the probability that the letting will be terminated and the volatility of rental values.The paper examines the key factors influencing these variables and presents a framework for incorporating their effects into pricing models.Approaches to their valuation derived from option pricing are critically assessed. It is argued that such models also tend to neglect the price effects of specific risk factors such as tenant circumstances and the terms of break clause. Specific risk factors have a significant bearing on the probability of letting termination and on the level of the resultant financial losses. The merits of a simulation methododology are examined for rental and capital valuations of short leases and properties with break clauses.It is concluded that in addition to the rigour of its internal logic, the success of any methodology is predicated upon the accuracy of the inputs.The lack of reliable data on patterns in, and incidence of, lease termination and the lack of reliable time series of historic property performance limit the efficacy of financial models.

Pricing and spread components at the Lima Stock Exchange

This paper analyses three aspects of the share market operated by the Lima Stock Exchange: (i) the short-term relationship between the pricing, direction and volume of order flows; (ii) the components of the spread and the equilibrium point of the limit order book per share, and (iii) the pricing, order direction and trading volume dynamic resulting from shocks in the same variables when lagged. The econometric results for intraday data from 2012 show that the short-run dynamic of the most and least liquid shares in the General Index of the Lima Stock Exchange is explained by the direction of order flow, whose price impact is temporary in both cases.

Pricing-to-market for UK export sector

This thesis investigates the pricing-to-market (PTM) behaviour of the UK export sector. Unlike previous studies, this study econometrically tests for seasonal unit roots in the export prices prior to estimating PTM behaviour. Prior studies have seasonally adjusted the data automatically. This study’s results show that monthly export prices contain very little seasonal unit roots implying that there is a loss of information in the data generating process of the series when estimating PTM using seasonally-adjusted data. Prior studies have also ignored the econometric properties of the data despite the existence of ARCH effects in such data. The standard approach has been to estimate PTM models using Ordinary Least Square (OLS). For this reason, both EGARCH and GJR-EGARCH (hereafter GJR) estimation methods are used to estimate both a standard and an Error Correction model (ECM) of PTM. The results indicate that PTM behaviour varies across UK sectors. The variables used in the PTM models are co-integrated and an ECM is a valid representation of pricing behaviour. The study also finds that the price adjustment is slower when the analysis is performed on real prices, i.e., data that are adjusted for inflation. There is strong evidence of auto-regressive condition heteroscedasticity (ARCH) effects – meaning that the PTM parameter estimates of prior studies have been ineffectively estimated. Surprisingly, there is very little evidence of asymmetry. This suggests that exporters appear to PTM at a relatively constant rate. This finding might also explain the failure of prior studies to find evidence of asymmetric exposure in foreign exchange (FX) rates. This study also provides a cross sectional analysis to explain the implications of the observed PTM of producers’ marginal cost, market share and product differentiation. The cross-sectional regressions are estimated using OLS, Generalised Method of Moment (GMM) and Logit estimations. Overall, the results suggest that market share affects PTM positively.Exporters with smaller market share are more likely to operate PTM. Alternatively, product differentiation is negatively associated with PTM. So industries with highly differentiated products are less likely to adjust their prices. However, marginal costs seem not to be significantly associated with PTM. Exporters perform PTM to limit the FX rate effect pass-through to their foreign customers, but they also avoided exploiting PTM to the full, since to do so can substantially reduce their profits.

Electronic tendering: an industry perspective

The construction industry is categorised as being an information-intensive industry and described as one of the most important industries in any developed country, facing a period of rapid and unparalleled change (Industry Science Resources 1999) (Love P.E.D., Tucker S.N. et al. 1996). Project communications are becoming increasingly complex, with a growing need and fundamental drive to collaborate electronically at project level and beyond (Olesen K. and Myers M.D. 1999; Thorpe T. and Mead S. 2001; CITE 2003). Yet, the industry is also identified as having a considerable lack of knowledge and awareness about innovative information and communication technology (ICT) and web-based communication processes, systems and solutions which may prove beneficial in the procurement, delivery and life cycle of projects (NSW Government 1998; Kajewski S. and Weippert A. 2000). The Internet has debatably revolutionised the way in which information is stored, exchanged and viewed, opening new avenues for business, which only a decade ago were deemed almost inconceivable (DCITA 1998; IIB 2002). In an attempt to put these ‘new avenues of business’ into perspective, this report provides an overall ‘snapshot’ of current public and private construction industry sector opportunities and practices in the implementation and application of web-based ICT tools, systems and processes (e-Uptake). Research found that even with a reserved uptake, the construction industry and its participating organisations are making concerted efforts (fortunately with positive results) in taking up innovative forms of doing business via the internet, including e-Tendering (making it possible to manage the entire tender letting process electronically and online) (Anumba C.J. and Ruikar K. 2002; ITCBP 2003). Furthermore, Government (often a key client within the construction industry),and with its increased tendency to transact its business electronically, undoubtedly has an effect on how various private industry consultants, contractors, suppliers, etc. do business (Murray M. 2003) – by offering a wide range of (current and anticipated) e-facilities / services, including e-Tendering (Ecommerce 2002). Overall, doing business electronically is found to have a profound impact on the way today’s construction businesses operate - streamlining existing processes, with the growth in innovative tools, such as e-Tender, offering the construction industry new responsibilities and opportunities for all parties involved (ITCBP 2003). It is therefore important that these opportunities should be accessible to as many construction industry businesses as possible (The Construction Confederation 2001). Historically, there is a considerable exchange of information between various parties during a tendering process, where accuracy and efficiency of documentation is critical. Traditionally this process is either paper-based (involving large volumes of supporting tender documentation), or via a number of stand-alone, non-compatible computer systems, usually costly to both the client and contractor. As such, having a standard electronic exchange format that allows all parties involved in an electronic tender process to access one system only via the Internet, saves both time and money, eliminates transcription errors and increases speed of bid analysis (The Construction Confederation 2001). Supporting this research project’s aims and objectives, researchers set to determine today’s construction industry ‘current state-of-play’ in relation to e-Tendering opportunities. The report also provides brief introductions to several Australian and International e-Tender systems identified during this investigation. e-Tendering, in its simplest form, is described as the electronic publishing, communicating, accessing, receiving and submitting of all tender related information and documentation via the internet, thereby replacing the traditional paper-based tender processes, and achieving a more efficient and effective business process for all parties involved (NT Governement 2000; NT Government 2000; NSW Department of Commerce 2003; NSW Government 2003). Although most of the e-Tender websites investigated at the time, maintain their tendering processes and capabilities are ‘electronic’, research shows these ‘eTendering’ systems vary from being reasonably advanced to more ‘basic’ electronic tender notification and archiving services for various industry sectors. Research also indicates an e-Tender system should have a number of basic features and capabilities, including: • All tender documentation to be distributed via a secure web-based tender system – thereby avoiding the need for collating paperwork and couriers. • The client/purchaser should be able to upload a notice and/or invitation to tender onto the system. • Notification is sent out electronically (usually via email) for suppliers to download the information and return their responses electronically (online). • During the tender period, updates and queries are exchanged through the same e-Tender system. • The client/purchaser should only be able to access the tenders after the deadline has passed. • All tender related information is held in a central database, which should be easily searchable and fully audited, with all activities recorded. • It is essential that tender documents are not read or submitted by unauthorised parties. • Users of the e-Tender system are to be properly identified and registered via controlled access. In simple terms, security has to be as good as if not better than a manual tender process. Data is to be encrypted and users authenticated by means such as digital signatures, electronic certificates or smartcards. • All parties must be assured that no 'undetected' alterations can be made to any tender. • The tenderer should be able to amend the bid right up to the deadline – whilst the client/purchaser cannot obtain access until the submission deadline has passed. • The e-Tender system may also include features such as a database of service providers with spreadsheet-based pricing schedules, which can make it easier for a potential tenderer to electronically prepare and analyse a tender. Research indicates the efficiency of an e-Tender process is well supported internationally, with a significant number, yet similar, e-Tender benefits identified during this investigation. Both construction industry and Government participants generally agree that the implementation of an automated e-Tendering process or system enhances the overall quality, timeliness and cost-effectiveness of a tender process, and provides a more streamlined method of receiving, managing, and submitting tender documents than the traditional paper-based process. On the other hand, whilst there are undoubtedly many more barriers challenging the successful implementation and adoption of an e-Tendering system or process, researchers have also identified a range of challenges and perceptions that seem to hinder the uptake of this innovative approach to tendering electronically. A central concern seems to be that of security - when industry organisations have to use the Internet for electronic information transfer. As a result, when it comes to e-Tendering, industry participants insist these innovative tendering systems are developed to ensure the utmost security and integrity. Finally, if Australian organisations continue to explore the competitive ‘dynamics’ of the construction industry, without realising the current and future, trends and benefits of adopting innovative processes, such as e-Tendering, it will limit their globalising opportunities to expand into overseas markets and allow the continuation of international firms successfully entering local markets. As such, researchers believe increased knowledge, awareness and successful implementation of innovative systems and processes raises great expectations regarding their contribution towards ‘stimulating’ the globalisation of electronic procurement activities, and improving overall business and project performances throughout the construction industry sectors and overall marketplace (NSW Government 2002; Harty C. 2003; Murray M. 2003; Pietroforte R. 2003). Achieving the successful integration of an innovative e-Tender solution with an existing / traditional process can be a complex, and if not done correctly, could lead to failure (Bourn J. 2002).

Prediction of highway truck conveyance configuration under over-limit prohibition and conveyance equilibrium

Aiming at the shortage of prevailing prediction methods about highway truck conveyance configuration in over-limit freight research that transferring the goods attributed to over-limit portion to another fully loaded truck of the same configuration and developing the truck traffic volume synchronously, a new way to get accumulated probability function of truck power tonnage in basal year by highway truck classified by wheel and axle type load mass spectrum investigation was presented. Logit models were used to forecast overall highway freight diversion and single cargo tonnage diversion when the weight rules and strict of enforcement intensity of overload were changed in scheme year. Assumption that the probability distribution of single truck loadage should be consistent with the probability distribution of single goods freighted, the model describes the truck conveyance configuration in the future under strict over-limit prohibition. The model was used and tested in Highway Over-limit Research Project in Anhui by World Bank.

Bubble geometry and chaotic pricing behaviour

This paper is a deductive theoretical enquiry into the flow of effects from the geometry of price bubbles/busts, to price indices, to pricing behaviours of sellers and buyers, and back to price bubbles/busts. The intent of the analysis is to suggest analytical approaches to identify the presence, maturity, and/or sustainability of a price bubble. We present a pricing model to emulate market behaviour, including numeric examples and charts of the interaction of supply and demand. The model extends into dynamic market solutions myopic (single- and multi-period) backward looking rational expectations to demonstrate how buyers and sellers interact to affect supply and demand and to show how capital gain expectations can be a destabilising influence – i.e. the lagged effects of past price gains can drive the market price away from long-run market-worth. Investing based on the outputs of past price-based valuation models appear to be more of a game-of-chance than a sound investment strategy.

Conditional coskewness and asset pricing

We explore the empirical usefulness of conditional coskewness to explain the cross-section of equity returns. We find that coskewness is an important determinant of the returns to equity, and that the pricing relationship varies through time. In particular we find that when the conditional market skewness is positive investors are willing to sacrifice 7.87% annually per unit of gamma (a standardized measure of coskewness risk) while they only demand a premium of 1.80% when the market is negatively skewed. A similar picture emerges from the coskewness factor of Harvey and Siddique (Harvey, C., Siddique, A., 2000a. Conditional skewness in asset pricing models tests. Journal of Finance 65, 1263–1295.) (a portfolio that is long stocks with small coskewness with the market and short high coskewness stocks) which earns 5.00% annually when the market is positively skewed but only 2.81% when the market is negatively skewed. The conditional two-moment CAPM and a conditional Fama and French (Fama, E., French, K., 1992. The cross-section of expected returns. Journal of Finance 47,427465.) three-factor model are rejected, but a model which includes coskewness is not rejected by the data. The model also passes a structural break test which many existing asset pricing models fail.