This paper considers the modeling of road congestion subject to peak-load demand. The standard model contains ambiguities and is poorly specified. These problems can be eliminated by working with a structural model that explicitly treats the congestion technology and drivers' behavioral decisions. The paper provides a detailed analysis of a particular structural model--William Vickrey's model of bottleneck congestion in the morning rush-hour auto commute, extended to treat elastic (i.e., price-sensitive) demand--and examines some economic implications of the structural approach.

Product heterogeneity is introduced into the context of spatial price discrimination. Many of the strong properties of the standard homogeneous goods case (which are attained as a limit case here) are shown to be no longer valid. In particular, the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different.

We consider an individual who lacks the information-processing capacity required for a direct comparison of all feasible allocations. Instead of finding at once a best allocation, the individual myopically adjusts his current allocation toward higher utility. The individual makes adjustment errors inversely proportional to his ability to choose. We compare the stationary state of this process with the standard model. We see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from our more general one as the special case corresponding to perfect ability.

The paper introduces the theory of optimal positioning of financial products. It is illustrated in the context of long-term intertemporal portfolio allocation and can be applied for example to asset allocation funds. We embed this problem in location theory: the portfolio is optimized within the investors’risk aversion dimension. For the CRRA utility functions, we compute explicitly the distance functions. For the first (utilitarian criterion), the average utility of the investors is maximized. For the second one (fairness criterion), the choice of portfolio is optimized so that the average monetary loss due to the lack of customization is minimized. Given the distribution of investors’ risk aversion, we provide a solution method and an algorithm to optimally position standardized portfolio along one of these two criteria.

This paper considers the theory of market versus optimal product diversity in the light of two recent advances in oligopoly theory. The first is the development of discrete choice models to describe heterogeneous consumer tastes, and the application of such models to oligopolistic competition. The second advance is the proof that logconcavity of the consumer taste density guarantees the existence of a price equilibrium. We analyze an oligopoly model with price competition and free entry, taking explicit account of the integer constraint. Under the Chamberlinian symmetry assumption (that tastes are i.i.d.), we first show that logconcavity of the taste density implies there is excessive market provision of variety when each consumer buys one unit of the product from one of the firms. We then show that this result extends to price-sensitive individual demands by proving that the equilibrium number of firms is at least as great as that which would be provided at the second-best social optimum subject to a zero-profit constraint for firms. Our results call into question previous findings for representative consumer models that left open the possibility of insufficient product diversity.

This paper considers the modeling of road congestion subject to peak-load demand. The standard model contains ambiguities and is poorly specified. These problems can be eliminated by working with a structural model that explicitly treats the congestion technology and drivers' behavioral decisions. The paper provides a detailed analysis of a particular structural model--William Vickrey' s model of bottleneck congestion in the morning rush-hour auto commute extended to treat elastic (i.e., price-sensitive) demand--and examin es some economic implications of the structural approach.

The authors consider an individual who lacks the information-processing capacity required for a direct comparison of all feasible allocations. Instead of finding at once a best allocation, the individual myopically adjusts his current allocation toward higher utility. The individual makes adjustment errors inversely proportional to his ability to choose. The authors compare the stationary state of this process with the standard model. They see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from the authors' more general one as the special case corresponding to perfect ability.