Karen Clay

Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry

Two conflicting predictions have emerged regarding the effect of low-cost information on price. The first states that all Internet retailers will charge the same low price for mass produced goods. The second states that Internet retailers will differentiate to avoid intense price competition. Using data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores, we find similar average prices online and in physical stores and substantial price dispersion online. Analysis of product differentiation yields no clear results. The substantial premium charged by Amazon provides indirect evidence of product differentiation. Copyright 2002 by Blackwell Publishing Ltd

An Empirical Analysis of Network Externalities in Peer-to-Peer Music-Sharing Networks

Peer-to-peer (P2P) file sharing networks are an important medium for the distribution of information goods. However, there is little empirical research into the optimal design of these networks under real-world conditions. Early speculation about the behavior of P2P networks has focused on the role that positive network externalities play in improving performance as the network grows. However, negative network externalities also arise in P2P networks because of the consumption of scarce network resources or an increased propensity of users to free ride in larger networks, and the impact of these negative network externalities--while potentially important--has received far less attention.Our research addresses this gap in understanding by measuring the impact of both positive and negative network externalities on the optimal size of P2P networks. Our research uses a unique dataset collected from the six most popular OpenNap P2P networks between December 19, 2000, and April 22, 2001. We find that users contribute additional value to the network at a decreasing rate and impose costs on the network at an increasing rate, while the network increases in size. Our results also suggest that users are less likely to contribute resources to the network as the network size increases. Together, these results suggest that the optimal size of these centralized P2P networks is bounded--At some point the costs that a marginal user imposes on the network will exceed the value they provide to the network. This finding is in contrast to early predictions that larger P2P networks would always provide more value to users than smaller networks. Finally, these results also highlight the importance of considering user incentives--an important determinant of resource sharing in P2P networks--in network design.

Designing a Better Shopbot

A primary tool that consumers have for comparative shopping is the shopbot, which is short for shopping robot. These shopbots automatically search a large number of vendors for price and availability. Typically a shopbot searches a predefined set of vendors and reports all results, which can result in time-consuming searches that provide redundant or dominated alternatives. Our research demonstrates analytically how shopbot designs can be improved by developing a utility model of consumer purchasing behavior. This utility model considers the intrinsic value of the product and its attributes, the disutility from waiting, and the cognitive costs associated with evaluating the offers retrieved. We focus on the operational decisions made by the shopbot: which stores to search, how long to wait, and which offers to present to the user. To illustrate our model we calibrate the model to price and response time data collected at online bookstores over a six-month period. Using prior expectations about price and response time, we show how shopbots can substantially increase consumer utility by searching more intelligently and then selectively presenting offers.

Order without law? Property rights during the California gold rush

The paper reconsiders the nature of mining districts and property rights during the California gold rush. According to a widely accepted view advanced by Umbeck (1977, 1981), in the absence of effective legal authority, district codes established secure property rights in mining claims. Such accounts neglect essential aspects of the economic context, specifically that the gold rush approximated an open-access race for a small number of high value deposits. We show that mining district codes gave equal attention to the rights of claim-jumpers as to claim holders, a balance that in practice generated chronic insecurity and litigation. A simple game-theoretic model illustrates stylized features of the situation.

The Effect of Judicial Independence on Courts: Evidence from the American States

This paper demonstrates that two initial conditions—having been settled by a country with a civil‐law legal system (France, Spain, or Mexico) and membership in the Confederacy during the Civil War—have had lasting effects on state courts in the United States. We find that states initially settled by civil‐law countries and states in the Confederacy granted less independence to their judiciary in 1970–90 and had lower‐quality courts in 2001–3. Furthermore, judicial independence is strongly associated with court quality. To explain these findings, we hypothesize that civil law acted through legislator preferences regarding the balance of power between the legislature and the judiciary, with legislators in civil‐law states preferring a more subordinate judiciary. The ability of civil‐law legislators to act on these preferences was, however, affected by within‐state political competition, which was much higher in northern states than in southern states after the Civil War.

Further Tests of Static Oligopoly Models: Whiskey, 1882–1898

Using data from the turn-of-the-century whiskey industry, we conduct tests of the NEIO methodology similar to those conducted by Genesove and Mullin [1998]. Like Genesove and Mullin, we find that the NEIO methodology appears to perform reasonably well for low levels of market power. Conduct is somewhat overestimated, with estimates ranging from 0.17 to 0.35 as compared to direct estimates of 0.09. Cost parameters are generally underestimated. Estimates of conduct and remaining cost parameters improve significantly, however, with additional information on cost. Estimates improve further if conduct is allowed to have two regimes, which are identified based on historical evidence. Copyright Blackwell Publishing Ltd. 2003.

Ex post vs. ex ante pricing: Optional calling plans and tapered tariffs

We study optimal nonuniform pricing in a setting where a customers demand at the start of a billing period contains a random variable whose realization becomes known by the end of the billing period. In this context, an optional calling plan is a tariff which the consumer must select based on his/her expectations about the random variable, whereas, under a tapered tariff, the consumers choice of usage charge is made after he/she knows the realization of the random variable. We show that for low to moderate levels of uncertainty about the random variable entering the demand function, the optional calling plan approach to nonuniform pricing yields higher expected profit than does the tapered tariff approach, given risk-neutral consumers. We illustrate this finding with a case study and argue that it is consistent with the historical evolution of tariffs in the interexchange telecommunications market.

Migrating to Riches? Evidence from the California Gold Rush

Gold discoveries in 1848 set off a large and extremely rapid migration to California. This article uses newly collected data from the 1850 and 1852 Censuses of Population together with the public use sample of the 1850 Census of Population to examine who went to California and how they did economically. We find that the propensity to migrate was affected by the individuals age and literacy, distance of the state from California, and average state latitude. Consistent with the historical literature, we find that economic outcomes were generally small or even zero for miners but were positive and large for nonminers.

Initial Conditions, Institutional Dynamics and Economic Performance: Evidence from the American States

Using state-level data from the United States, we find that differences in colonial legal institutions affect the current quality of state legal institutions. These differences in colonial legal institutions arose because some states were settled by Great Britain, a common law country, and other states were settled by France, Spain, and Mexico, all civil law countries. To explain these findings, we develop a transplant-civil law hypothesis that highlights the disruption associated with large-scale legal transplantation and the possible relative inefficiencies of colonial civil law. We find strong support for the transplant-civil law hypothesis. Our results are robust to inclusion of additional variables capturing climate, geography, initial population and resource endowments. Given the 150-200 year gap between the initial conditions and the measures of the current quality of legal institutions, we provide indirect evidence on the persistence of legal institutions. We then use initial legal systems and climate to quantify the substantial impact of current institutions on current economic performance.

The Evolution of a Nation: How Geography and Law Shaped the American States

Although political and legal institutions are essential to any nations economic development, the forces that have shaped these institutions are poorly understood. Drawing on rich evidence about the development of the American states from the mid-nineteenth to the late twentieth century, this book documents the mechanisms through which geographical and historical conditions--such as climate, access to water transportation, and early legal systems--impacted political and judicial institutions and economic growth. The book shows how a states geography and climate influenced whether elites based their wealth in agriculture or trade. States with more occupationally diverse elites in 1860 had greater levels of political competition in their legislature from 1866 to 2000. The book also examines the effects of early legal systems. Because of their colonial history, thirteen states had an operational civil-law legal system prior to statehood. All of these states except Louisiana would later adopt common law. By the late eighteenth century, the two legal systems differed in their balances of power. In civil-law systems, judiciaries were subordinate to legislatures, whereas in common-law systems, the two were more equal. Former civil-law states and common-law states exhibit persistent differences in the structure of their courts, the retention of judges, and judicial budgets. Moreover, changes in court structures, retention procedures, and budgets occur under very different conditions in civil-law and common-law states. The Evolution of a Nation illustrates how initial geographical and historical conditions can determine the evolution of political and legal institutions and long-run growth.