PRICE UNCERTAINTY,FACTOR SUBSTITUTION,AND THE LOCATIONAL BIAS OF BUSINESS TAXES*

Consideration of the integrated production-location problem is extended to include several types of business taxes. Many of these taxes are technologically and spatially neutral under certainty, but are shown to be nonneutral when factor prices are stochastic and the firm is risk averse, even when the tax is spatially uniform. Consequently, even a nationally uniform tax can have regional biases and can encourage migration of plants. When factor prices are uncertain, the effects of taxes on output rates, input ratios, and plant location vary with the form of the tax imposed as well as the amount to be paid. Income taxes involve the taxing authority in sharing the risk with the firm and are shown to promote risk taking by the firm and induce the expansion of output. Locational incentives which are mutually beneficial to firms and the government are presented.     

AN EMPIRICAL ANALYSIS OF INTERREGIONAL PRICE LINKAGES*

ABSTRACT Vector autoregression models are used to analyze the relationships between Texas and Illinois corn prices, and the New Orleans export price. Decomposition of error variances suggests an increasing exogeneity in the recent years between the export market and the two U.S. markets. Impulse response functions indicate that the export price influences both the Illinois and Texas prices.     

THE CORE OF A SPATIAL PRICE EQUILIBRIUM GAME*

ABSTRACT This paper presents a critical appraisal of the use of the core as a solution concept for games involving spatially separated producers. Starting from the classical Samuelson/Takayama-Judge spatial price equilibrium model, the core of a game between the producers of commodities in this economy is defined, the conditions ensuring the nonemptiness of the core are stated, and the problems surrounding the definition and computation of the characteristic function are addressed. An application to the eastern United States’coal market is then presented in order to illustrate the usefulness of the theoretical and algorithmic results of this paper.     

PRICE UNCERTAINTY AND PRODUCTION-LOCATION DECISIONS UNDER FREE ENTRY OLIGOPOLY*

ABSTRACT. This paper departs from earlier work on location theory under uncertainty by considering an oligopoly case where the symmetric Cournot-Nash equilibrium of imperfectly competitive and identical firms are examined. It will be shown that once a Cournot competitive equilibrium is introduced, the demand function plays a central role in the choice of location, and the effects of changes in fixed costs, mean product price and price variability on the firm's optimum location and output are independent of absolute and/or relative risk aversion. These striking results are in sharp contrast with the well-known results obtained in previous contributions to the location literature.     

THE EXCHANGEABILITY OF HEDONIC PROPERTY PRICE STUDIES*

ABSTRACT. Observations drawn from multiple markets are essential to the construction of indices of housing costs and to measures of demand for housing attributes. It is not evident when multiple markets exist or whether such markets exist for some attributes but not for others. We test for multiple markets by using Bayesian methods to assess the transferability (random exchangeability) of entire hedonic price expressions from one site and time to another, the transferability of hedonic price functions for particular attributes, and the degrees of similarity that hedonic price functions must have in order to be transferable. In our illustrations, price functions for structural housing attributes are generally transferable; prices for neighborhood attributes are not. Therefore, in our illustrations, the desired price indices and demand functions should be estimable for neighborhood attributes, but not for structural ones.     

THE OUTPUT EFFECTS OF SPATIAL PRICE DISCRIMINATION REVISITED*

ABSTRACT Some prior findings on spatial price discrimination are extended. Under certain spatially defined market conditions, discriminatory pricing is known to yield greater output than does nondiscriminatory f.o.b. mill pricing. However, this seemingly surprising result is based on the form of the basic demand function which is relatively less convex than a certain standard curve. The present paper makes this prior result more general by permitting the assumed basic demand to be relatively more convex.     

PRODUCTION TECHNOLOGY UNCERTAINTY AND THE OPTIMAL LOCATION OF THE FIRM*

ABSTRACT This paper investigates the implication of production-technology uncertainty for the exclusion theorem. The paper presents the result that the risk-averse firm facing production technology uncertainty prefers an intermediate location to avoid risk under certain conditions. The firm chooses an intermediate location (over a corner location) particularly if its degree of risk aversion overwhelms the inherent convexity of profit with respect to location. The latter depends, in turn, on the structure of production technology characterized by the elasticity of substitution and returns to scale parameters.     

A CONTEXTUAL THEORY OF RETAIL CENTRAL PLACES ON A LINEAR MARKET*

ABSTRACT. This paper presents an initial version of a new theory of central places for retailing activities. Confined to a linear market and using the Contextual Theory of Demand to model consumer behavior, the model extends the economic theory of central places (Eaton and Lipsey, 1982). In its present form, the model specifies four parameters that control the spatial relationship between the locations of households and the equilibrium locations of central places: expenditure shares in consumption, transportation cost functions, storage costs by commodity, and capital costs of retailers. The locational equilibria of the model are optima when all costs are considered.     

DEREGULATING THE DISTRIBUTION OF ELECTRICITY: PRICE AND WELFARE CONSEQUENCES OF SPATIAL OLIGOPOLY WITH UNIFORM DELIVERED PRICES*

ABSTRACT. Theoretical, spatial oligopoly models are developed and calibrated to simulate the price and welfare consequences of deregulating the retail price of electricity (the distribution function), assuming competing sources of generation supply are available. Two types of distribution competition are considered, retaining the currently used uniform delivered pricing structure: competition for customers at neighboring utilities’ borders and franchise competition. Because duplicate facilities are required for borderline competition, short-run price increases ranging between 14 and 37 percent over existing regulated prices are estimated for upstate New York, largely because deregulated prices reflect replacement, not historic, costs of facilities.     

THE EFFECT OF RETAIL FIRM OWNERSHIP ON PRICE EQUILIBRIUM*

ABSTRACT. This paper examines the effect of retail firm ownership on price equilibrium using a simple linear-city model. It is shown that price divergence emerges due to the differences in retail firm ownership, because retail firms under different ownership internalize shopping externalities differently. It is also shown that if a commercial center has two specialized retail firms, these stores charge the same markup for different goods at the equilibrium.     

THE LAW OF ONE PRICE IN A NETWORK: ARBITRAGE AND PRICE DYNAMICS IN NATURAL GAS CITY GATE MARKETS*

ABSTRACT. In this paper we develop a model of the law of one price in a network where many markets are linked with a structure of paths. We show that arbitrage-free prices depend on the structure of the network and so do price dynamics. Our estimates indicate that local bypass and open access pipeline transportation were instrumental in opening arbitrage paths to natural gas city markets and causing their prices to converge. Spot markets in the city gates, pipeline hubs, and production fields, that are scattered over distant points in the vast pipeline network in the United States, now form a single market.