2 Naive Surplus Theory 2.1 Consumers who buy 0 or 1 unit I introduce the concept of surplus in one of the simplest models of demand. [This is the model underlying (Bakos and Brynjolfsson, 1999).] Consider a very large population of K consumers facing a market for a single good. Each consumer will buy either one or zero units of this good (per period), depending on the price. Each consumer has a...

Examining two different changes in retail format, we show that consumers alter their purchase behavior when the retail context changes. In both settings, the change in purchasing behavior is consistent with the effect being driven by an interpersonal interaction between the consumer and the retail clerk. We therefore model the change in format as a “social friction” in which consumers may not p...

T paper studies optimal product line design when consumers need to incur costly deliberation to uncover their valuations for quality. To induce deliberation, a firm must maintain quality dispersion and cut the price of the high-end product so that consumers are motivated to deliberate in the hope that high-end consumption fits their needs. To prevent deliberation, the firm may have to offer dow...

Aggregative games are used to model strategic interaction in many …elds of economics, including industrial organization, political economy, international trade, and public …nance. In such games, each player’s payo¤ depends on his/her own actions and an aggregate of all player’s actions. Examples in industrial organization are the Cournot oligopoly model, logit and CES di¤erentiated products Ber...

The effects of uniting separated markets, each monopolized by a producer, into a globalized oligopolistic market, which is regarded as a non-cooperative game, are investigated. The cases where such globalization degrades the profits or surpluses of all producers, are examined. Linear demand and production functions are considered. The revenues of producers and consumers are assumed to be indepe...

Happiness studies show that there has been no discernable rise in happiness in the United States between 1959 and 2004, yet the same period saw per capita income nearly triple. Dwight Lee modifies the theory of consumer demand to resolve this apparent conflict. Using the concepts of consumer surplus and rising incomes causing demand shifts, Lee posits that the law of downward sloping demand onl...

The use of cost-benefit analysis to evaluate the net welfare payoffs from water projects has now been an established practice for many years. One of the interesting aspects of such cost-benefit studies is that water projects involve an uncertain flow of costs and benefits, arising from the stochastic nature of streamflows. Hence a basic problem for the cost-benefit analyst is that of incorporat...

Search engines, referrals services, advisors, and other forms of information gatekeepers and recommenders, are omnipresent in today’s information-heavy economy. These services widely employ sponsored recommendations, wherein merchants pay the recommender in return for favorable placement in the recommender’s list. As a form of advertising, sponsored results can serve as a signaling mechanism wh...