Trade and Linked Exchange; Price Discrimination Through Transaction Bundling

In this paper we try to explain how price discrimination can cause bilateral trade patterns of the type seen under countertrade agreements. We interpret countertrade as a form of transaction bundling which can discriminate between potential trading partners and we combine characteristics from both explanations as to the existence of countertrade. There is both price discrimination through transaction bundling, and informational asymmetry in the form of uncertainty in the quality of the goods produced by trading partners in less developed countries (LDCs) leading to a partner preference from the side of the Western (DC) firm. Our paper shows that although the ability of firms in LDCs to overcome their creditworthiness constraints by engaging in countertrade arrangements may be restricted by this quality uncertainty as it reduces the willingness of a firm in a DC to exchange, the trade volume prospects of a firm in a LDC can be considerably enhanced if a countertrade transaction does occur. Our paper goes beyond the case of linked exchange, which is only one of the three cases of transaction bundling examined. The other two cases are that of the Western firm being a monopoly selling a bundle of two goods used as a benchmark case, and the more interesting case of the Western firm being the buyer of two goods and setting both two separate buying prices and a bundling (i.e. package) purchase price. Many procurement decisions are not simply a matter of price, but also the identity and reputation of the supplier matters, especially when the supplier is located in an LDC. We show than when bundling its purchases, the Western firm buyer will be willing to offer a bundled price greater than the sum of the two separate prices, as the option of a bundled purchase would increase its pro…ts even if there are no complementarities between the goods bundled. In our model the argument is that just as it is profitable for a monopolist to offer mixed bundling at a bundled price which is lower than the sum of the individual prices (hence exploiting the average willingness to pay), it is also profitable for a monopsonist to offer a bundled purchase price which is higher that the sum of the individual prices on offer (hence exploiting the average willingness to sell). Equally interestingly, it is found that a LDC can substantially increase its sales of a good with a high degree of quality uncertainty by being offered to bundle it with the sale of a more basic good with a low degree of quality uncertainty

Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds

Experimental subjects allocate $10,000 across four S&P 500 index funds. Subject rewards depend on the chosen portfolio’s subsequent return. Because the investments are not actually intermediated by the fund companies, portfolio returns are unbundled from non-portfolio services. The optimal portfolio therefore invests 100% in the lowest-cost fund. Nonetheless, subjects overwhelmingly fail to minimize fees. When we make fees transparent and salient, portfolios shift towards cheaper funds, but fees are still not minimized. Instead, subjects place high weight on normatively irrelevant historical returns. Subjects who choose high-cost index funds are relatively much less confident about their asset allocation choices.

$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans

It is typically difficult to determine whether households invest optimally. But sometimes, investment incentives are strong enough to create sharp normative restrictions. We identify employees at seven companies who are eligible to receive employer matching contributions in their 401(k) and can make penalty-free withdrawals for any reason. For these employees, contributing less than the match threshold is a dominated action that violates the no-arbitrage condition. Nevertheless, between 20% and 60% contribute below the threshold, losing as much as 6% of their annual pay. Providing employees with information about the free lunch they are foregoing fails to raise contribution rates.

Spin-transfer torque in magnetic multilayer nanopillars

We consider a quasi one-dimensional configuration consisting of two small pieces of ferromagnetic material separated by a metallic one and contacted by two metallic leads. A spin-polarized current is injected from one lead. Our goal is to investigate the correlation induced between the magnetizations of the two ferromagnets by spin-transfer torque. This torque results from the interaction between the magnetizations and the spin polarization of the current. We discuss the dynamics of a single ferromagnet, the extension to the case of two ferromagnets, and give some estimates for the parameters based on experiments.Comment: To appear in the Journal of Physics: Conference Series (Proceedings of the International Conference on Nanoscience and Technology, Basel, 2006

Quantum Key Distribution Using Quantum Faraday Rotators

We propose a new quantum key distribution (QKD) protocol based on the fully quantum mechanical states of the Faraday rotators. The protocol is unconditionally secure against collective attacks for multi-photon source up to two photons on a noisy environment. It is also robust against impersonation attacks. The protocol may be implemented experimentally with the current spintronics technology on semiconductors.Comment: 7 pages, 7 EPS figure