A large literature studies how prices respond to changes in market conditions. More recent work examines firm adjustments along the product quality and variety channels. We present a theoretical model of heterogeneous, multi-product firms to characterize the response of firms to idiosyncratic cost shocks along the price and variety channels. The model delivers rich implications and interesting trade-offs between the two channels. Large firms respond to a cost increase by raising both prices and scope. Relative to smaller firms, they respond more through scope than prices. Availability of the variety channel eases pressures to absorb cost changes and increases pass-through.

We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia, their market share collapsed from 16.5 percent in January to below 1 percent in March, and never fully recovered; by 2009, it was 6.3 percent. By analyzing micro-level (scanner) price and sales data, we find the following. (i) Danish firms lowered prices but kept the product mix the same. (ii) Non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles. (iii) Non-Danish firms chose to introduce products that were similar to the Danish products in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.

We investigate the link between crude oil prices, retail gasoline prices and consumer sentiment in the euro area. Our results reveal that consumer sentiment and its key components deteriorate notably as a response to positive shocks to real gasoline prices at the pump. On the contrary, positive oil-specific demand shocks do not trigger such a strong deterioration of consumer sentiment. The analysis is further refined to analyse the effects of these shocks to six key sub-components of consumer sentiment, which include household finance, conditions for buying durable products and the macroeconomy.

We build on recent work that analyzes consumers' ability to save by exploiting price dispersion in grocery stores. We show that store expensiveness varies across consumers depending on the basket they consume, meaning that consumers can save more by shopping at a store that is cheaper for their basket rather than at a store that is cheaper overall. We incorporate this insight into a new price variance decomposition that is a refinement of existing approaches. Our results show that the ability to buy products from the store where they are cheapest is much less important than previous work had found; rather, the ability to choose the cheapest stores for one's basket is a more important source of variation in the prices consumers pay. Our approach also provides an informal test for competing theories modeling consumers as either shopping for products or shopping for categories, and finds support for both. We conclude that the idea of consumers choosing the right store for their basket has substantial traction and is a useful addition to our arsenal of models of consumer search behavior.

We analyse the pass-through of international oil price fluctuations to wholesale and retail fuel prices in Cyprus and test for the possibility of asymmetric pass-through (the “rockets and feathers” phenomenon). We analyse both the total adjustment of the general price level (from the international price to the average local retail price) and the intermediate stages: from the international price to the wholesale price and from the wholesale price to the retail price. We find no evidence of asymmetric price adjustment in the former channel, but we do find limited evidence of asymmetric adjustment in the latter channel.

We investigate whether store expensiveness is the same for all consumers in a market, or whether it is consumer specific, as would be the case, for example, if some consumers selected the stores they visit based on the basket they purchase. For about 27 percent of consumers the relative expensiveness of their top two stores differs when computed using the consumer’s basket and the store average basket. We also replicate and extend the Kaplan and Menzio (2015) decomposition of consumer price index to show that consumers can save more by selecting stores where their baskets are cheap than they can by purchasing the goods in their basket in the stores they visit where these goods are cheap.

Quantity surcharges occur when retailers carry a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur, sales of the large size decline only slightly even though the same quantity can be purchased for less. We document this behavior in two data sets and four product categories. It is consistent with the notion of passive shoppers found in the industrial organization literature and the notion of rational inattention in macroeconomics. We discuss implications for consumer decision making, demand estimation, and firm pricing.

The following sections are included:IntroductionThe Rise and Fall of the Cypriot EconomyBanks and Beyond: A Reform AgendaBeyond the MoUReferences

It is indisputable that economics has become an essential parameter in modern competition law enforcement, with the result that the analysis of a competition law case is virtually impossible without the integration and assessment of economic evidence in reaching the final decision. Best practice across the European Union (“the EU”) in applying competition law clearly recognises the critical correlation between the proper selection, presentation and content of the relevant economic evidence and its appropriate interpretation and assessment by the decision-making body. In the case of Cyprus, this body is the Cyprus Commission for the Protection of Competition (“the Commission”). This paper is a case comment aiming to present the reader with an insight into the manner the Commission has handled and assessed economic evidence in the process of reaching its decision No. 42/2014, with particular reference to part 11.4.2 of its decision, which is the relevant economic analysis of the Commission. It begins with an exposition of the material facts, the decision and the economic dimensions of the case. It then focuses on the critical aspect of how the Commission dealt with and analysed the economic evidence before it in order to decide the case. The paper ends with a section on the approaches taken in competition law and practice both in Cyprus, with reference to the case in question, the United Kingdom (“the UK”) and the wider EU framework. To the best of our knowledge, this paper is the first attempt to evaluate a competition case in Cyprus from an economics perspective. Providing that there is a significant gap in public discourse in this area, even among competition and economics experts, this paper marks the beginning towards the narrowing and the bridging of gap therein, and is accordingly of crucial importance to competition law and practice in the Republic of Cyprus.

It is indisputable that economics has become an essential parameter in modern competition law enforcement, with the result that the analysis of a competition law case is virtually impossible without the integration and assessment of economic evidence in reaching the final decision. Best practice across the European Union (“the EU”) in applying competition law clearly recognises the critical correlation between the proper selection, presentation and content of the relevant economic evidence and its appropriate interpretation and assessment by the decision-making body. In the case of Cyprus, this body is the Cyprus Commission for the Protection of Competition (“the Commission”). This paper is a case comment aiming to present the reader with an insight into the manner the Commission has handled and assessed economic evidence in the process of reaching its decision No. 42/2014, with particular reference to part 11.4.2 of its decision, which is the relevant economic analysis of the Commission. It begins with an exposition of the material facts, the decision and the economic dimensions of the case. It then focuses on the critical aspect of how the Commission dealt with and analysed the economic evidence before it in order to decide the case. The paper ends with a section on the approaches taken in competition law and practice both in Cyprus, with reference to the case in question, the United Kingdom (“the UK”) and the wider EU framework. To the best of our knowledge, this paper is the first attempt to evaluate a competition case in Cyprus from an economics perspective. Providing that there is a significant gap in public discourse in this area, even among competition and economics experts, this paper marks the beginning towards the narrowing and the bridging of gap therein, and is accordingly of crucial importance to competition law and practice in the Republic of Cyprus.

The electronic communications sector has experienced rapid growth and dramatic change in recent years. We quantify the development of the sector in Cyprus in two ways. First, we measure the sector’s contribution to economic output and provide comparisons with other European countries. The sector grew rapidly relative to the rest of the economy from 1995 until 2005 but much more slowly in the last decade. Second, we construct a price index for internet services using the hedonic methodology. Quality-adjusted prices of internet services dropped by 75% between 2005 and 2016, with most of the decline occurring between 2007-2012.

We estimate the degree of competition in the banking sectors of 148 countries over the period 1997–2010 using three methods: the Lerner index, the adjusted Lerner index, and the profit elasticity. Marginal cost estimates required for all methods are obtained using a flexible semi‐parametric methodology. All three indices show that competitive conditions in banking deteriorated during the period 1997–2006, improved until 2008, and deteriorated again thereafter. Levels of competition differ across regions and income groups, but there is gradual convergence over time. Banking system is less competitive in sub‐Saharan Africa and low income countries and more competitive in Europe and Central and South Asia and OECD countries.

The depositor bail-in of March 2013 was an unprecedented event that shocked Cyprus and reverberated around the world. Up until 2000, Cyprus ran a closed and tightly controlled financial system and its banks were conservative, inward-looking institutions. The turn of the century brought the liberalization of the financial system, EU entry and adoption of the euro. These watershed events drastically altered the environment. Banks, supervisors and the political system did not handle this transition well, setting the stage for a major crisis. Government inability to act decisively when problems first appeared gave the crisis catastrophic proportions.

The depositor bail-in of March 2013 was an unprecedented event that shocked Cyprus and reverberated around the world. Up until 2000, Cyprus ran a closed and tightly controlled financial system and its banks were conservative, inward-looking institutions. The turn of the century brought the liberalization of the financial system, EU entry and adoption of the euro. These watershed events drastically altered the environment. Banks, supervisors and the political system did not handle this transition well, setting the stage for a major crisis. Government inability to act decisively when problems first appeared gave the crisis catastrophic proportions.

Vehicle taxation based on emissions is increasingly being adopted worldwide to shift consumer purchases to low‐carbon cars, yet evidence on its effectiveness and economic impact is limited. We focus on feebate schemes, which impose a fee on high‐carbon vehicles and give a rebate to low‐carbon cars. We estimate demand for passenger cars in Germany and simulate the impact of alternative feebate schemes on emissions, consumer welfare, public revenues and firm profits. We find that revenue‐neutral feebate schemes are welfare decreasing; welfare can only increase with schemes that increase tax revenues at the expense of consumer and producer surplus.

We estimate the degree of competition in the banking sectors of 148 countries worldwide over the period 1997-2010. We employ three methods, namely those of Lerner (1934), Koetter, Kolari and Spierdijk (2012) and Boone (2008a). For the estimation of marginal cost required under all methods, we use the semi-parametric methodology of Delis (2012) that allows increasing the flexibility of the functional form imposed on the cost function. All three indices show that the competitive conditions in banking have deteriorated on average during the period 1997-2006. This trend reverses until 2008, while in 2009 and 2010 market power again increases. Thus, we provide evidence that the competitive conditions are correlated with financial stability. The empirical results also highlight important differences between regional and income groups of countries. On average, the banking systems of Sub-Saharan Africa and subsequently of East Asia and Pacific are the least competitive, while the banking systems of Europe and Central Asia and South Asia seem to be the most competitive ones. Further, the non-OECD countries characterized by either highor low-income levels have less competitive banking sectors, while middle-income countries have more competitive banking sectors. For the OECD countries the results of the Lerner-type indices and the method by Boone (2008a) give conflicting results.

We estimate the degree of competition in the banking sectors of 148 countries worldwide over the period 1997-2010. We employ three methods, namely those of Lerner (1934), Koetter, Kolari and Spierdijk (2012) and Boone (2008a). For the estimation of marginal cost required under all methods, we use the semi-parametric methodology of Delis (2012) that allows increasing the flexibility of the functional form imposed on the cost function. All three indices show that the competitive conditions in banking have deteriorated on average during the period 1997-2006. This trend reverses until 2008, while in 2009 and 2010 market power again increases. Thus, we provide evidence that the competitive conditions are correlated with financial stability. The empirical results also highlight important differences between regional and income groups of countries. On average, the banking systems of Sub-Saharan Africa and subsequently of East Asia and Pacific are the least competitive, while the banking systems of Europe and Central Asia and South Asia seem to be the most competitive ones. Further, the non-OECD countries characterized by either highor low-income levels have less competitive banking sectors, while middle-income countries have more competitive banking sectors. For the OECD countries the results of the Lerner-type indices and the method by Boone (2008a) give conflicting results.