Department of Economics

Pricing Information Goods in the Presence of Copying

Paul Belleflamme

Working Paper No. 463 September 2002 ISSN 1473-0278

Sulflqj lqirupdwlrq jrrgv lq wkh suhvhqfh ri frs|lqj
Sdxo Ehooh dpphW

Dxjxvw 49/ 5335

Devwudfw
Wkh hhfwv ri +sulydwh/ vpdoo0vfdoh, frs|lqj rq wkh sulflqj ehkdylru ri
surgxfhuv ri lqirupdwlrq jrrgv duh vwxglhg zlwklq d xqlhg prgho ã od
Pxvvd0Urvhq +4<:;,1 Zkhq wkh frs|lqj whfkqrorj| lqyroyhv d pdujlqdo
frvw dqg qr {hg frvw/ surgxfhuv dfw lqghshqghqwo|1 Lq wklv vlpsoh iudph0
zrun/ zh kljkoljkw wkh wudgh0r ehwzhhq h{ dqwh dqg h{ srvw h!flhqf|
frqvlghudwlrqv +krz wr surylgh wkh uljkw lqfhqwlyhv wr fuhdwh zklovw olp0
lwlqj prqrsro| glvwruwlrqvB,1 Zkhq wkh frs|lqj whfkqrorj| lqyroyhv d
{hg frvw dqg qr pdujlqdo frvw/ sulflqj ghflvlrqv duh lqwhughshqghqw1 Zh
lqyhvwljdwh wkh vwudwhjlf sulflqj jdph e| irfxvvlqj rq vrph vljqlfdqw
v|pphwulf Qdvk htxloleuld1
MHO Fodvvlfdwlrq Qxpehuv= O46/ O;5/ O;9/ N44/ R671
Nh|zrugv= Lqirupdwlrq jrrgv/ sludf|/ frs|uljkw/ sulflqj1

W Ghsduwphqw ri Hfrqrplfv/ Txhhq Pdu|/ Xqlyhuvlw| ri Orqgrq/ Ploh Hqg Urdg/ Orqgrq H4
7QV +skrqh= . 77 53 :;;5 88;:/ id{= .77 53 ;<;6 68;3/ h0pdlo= s1ehoohiodpphCtpxo1df1xn/
krph sdjh= kwws=22zzz1tpxo1df1xn2xjwh4;92,1 L dp judwhixo wr Jlxolr Ihood/ Vwdq
Olherzlw}/ Uxwk Wrzvh dqg Ulfkdug Zdww iru wkhlu frpphqwv dqg vxjjhvwlrqv rq dq hduolhu
gudiw1

4
4 Lqwurgxfwlrq
Lqirupdwlrq fdq eh ghqhg yhu| eurdgo| dv dq|wklqj wkdw fdq eh gljlwl}hg +l1h1/
hqfrghg dv d vwuhdp ri elwv,/ vxfk dv wh{w/ lpdjhv/ yrlfh/ gdwd/ dxglr dqg ylghr
+vhh Yduldq/ 4<<;,1 Lqirupdwlrq lv h{fkdqjhg xqghu d zlgh udqjh ri irupdwv
ru sdfndjhv +zklfk duh qrw qhfhvvdulo| gljlwdo,1 Wkhvh irupdwv duh jhqhulfdoo|
fdoohg lqirupdwlrq jrrgv1 Errnv/ prylhv/ pxvlf/ pdjd}lqhv/ gdwdedvhv/ whoh0
skrqh frqyhuvdwlrqv/ vwrfn txrwhv/ zhe sdjhv/ qhzv/ hwf1 doo idoo lqwr wklv fdwh0
jru|1
Prvw lqirupdwlrq jrrgv duh h{shqvlyh wr surgxfh exw fkhds wr uhsurgxfh1
Wklv frpelqdwlrq ri kljk {hg frvwv dqg orz +riwhq qhjoljleoh, pdujlqdo frvwv
lpsolhv wkdw lqirupdwlrq jrrgv duh lqkhuhqwo| qrqulydo14 Pruhryhu/ ehfdxvh
uhsurgxfwlrq frvwv duh dovr srwhqwldoo| yhu| orz iru dq|erg| rwkhu wkdq wkh
fuhdwru ri wkh jrrg/ lqirupdwlrq jrrgv pljkw eh qrqh{foxgdeoh/ lq wkh vhqvh
wkdw rqh shuvrq fdqqrw h{foxgh dqrwkhu shuvrq iurp frqvxplqj wkh jrrg lq
txhvwlrq1
Wkh ghjuhh ri h{foxgdelolw| ri dq lqirupdwlrq jrrg +dqg khqfh wkh fuhdwru*v
delolw| wr dssursuldwh wkh uhyhqxhv iurp wkh surgxfwlrq ri wkh jrrg, fdq eh
hqkdqfhg e| ohjdo dxwkrulw| +w|slfdoo| e| wkh dgrswlrq ri odzv surwhfwlqj lq0
whoohfwxdo surshuw|, ru e| whfkqlfdo phdqv +h1j1/ fdeoh eurdgfdvw duh hqfu|swhg/
vr0fdoohg xqulssdeoh FGv kdyh uhfhqwo| dsshduhg,1 Krzhyhu/ frpsohwh h{0
foxgdelolw| vhhpv kdug wr dfklhyh= vlpso| vshfli|lqj lqwhoohfwxdo surshuw| odzv
grhv qrw hqvxuh wkdw wkh| zloo eh hqirufhg> vlploduo|/ whfkqlfdo surwhfwlyh phd0
vxuhv duh riwhq lpshuihfw dqg fdq eh fudfnhg1 Dv d uhvxow/ loolflw frs|lqj +ru
sludf|, fdqqrw eh frpsohwho| dyrlghg1
Ryhu wkh odvw ghfdgh/ wkh idvw shqhwudwlrq ri wkh Lqwhuqhw dqg wkh lqfuhdvhg
gljlwl}dwlrq ri lqirupdwlrq kdyh wxuqhg sludf| ri lqirupdwlrq jrrgv +lq sduwlf0
xodu pxvlf/ prylhv dqg vriwzduh, lqwr d wrslf ri lqwhqvh ghedwh1 D vhohfwlrq ri
qhzv khdgolqhv jdwkhuhg uhfhqwo| +Iheuxdu|0Pdufk 5335, looxvwudwhv wkh fxuuhqw
h{whqw ri wkh ghedwh1 Wkhvh khdgolqhv duh derxw +l, d sursrvhg dqwl0sludf| eloo
lq wkh XV wkdw zrxog xowlpdwho| uhtxluh frpsxwhu dqg frqvxphu hohfwurqlfv
frpsdqlhv wr exlog sludf|0suhyhqwlrq vriwzduh lqwr wkhlu surgxfwv/ +ll, d pdq
idflqj mdlo lq Fdoliruqld iru Zhe vdohv ri FGv/ +lll, wkh uhohdvh ri qhz shhu0wr0
shhu oh0vkdulqj vriwzduhv dlplqj wr uhsodfh Qdsvwhu/ +ly, pxvlf glvwulexwruv
hvwlpdwlqj wkdw uhwdlo vdohv pd| eh grzq dv pxfk dv 43 shufhqw gxulqj wkh sdvw
|hdu dv frqvxphuv vkliw wr qhz whfkqrorjlhv olnh frs|lqj FGv dqg grzqordglqj
vrqjv/ +y, pxvlf frpsdqlhv vhwwolqj d odzvxlw zlwk d FG frqvxphu zkr doohjhg
wkdw wkh FG vkh sxufkdvhg glg qrw phhw frqvxphu h{shfwdwlrqv ehfdxvh lw frxog
qrw eh sod|hg rq d frpsxwhu/ ru +yl, d Wdlzdqhvh Zhe vlwh wkdw rhuv dffhvv wr
4
Qrqulydoqhvv lq frqvxpswlrq lv xvxdoo| ghqhg e| vd|lqj wkdw wkh frqvxpswlrq srvvlelolwlhv
ri rqh lqglylgxdo gr qrw ghshqg rq wkh txdqwlwlhv frqvxphg e| rwkhuv1 Wklv lv htxlydohqw wr
vd| wkdw/ iru dq| jlyhq ohyho ri surgxfwlrq/ wkh pdujlqdo frvw ri surylglqj wkh jrrg wr dq
dgglwrqdo frqvxphu lv }hur1

5
d kxjh oleudu| ri opv iru mxvw '4 hdfk +dqg zklfk/ xqghuvwdqgdeo|/ kdv gudzq
Kroo|zrrg*v luh,15
Qrw vxusulvlqjo|/ hfrqrplvwv kdyh uhfhqwo| vkrzq d uhqhzhg lqwhuhvw lq lqiru0
pdwlrq jrrgv sludf|1 Khuh iroorzv d vhohfwlrq ri uhfhqw zrunlqj sdshuv zklfk
lqyhvwljdwh d qxpehu ri wrslfdo lvvxhv1 Jd|hu dqg Vk| +5334d, vkrz wkh lq0
h!flhqf| ri xvlqj kdugzduh wd{dwlrq wr frpshqvdwh frs|uljkw rzqhuv iru lq0
iulqjhphqwv ri wkhlu lqwhoohfwxdo surshuw| +LS,1 Lq dqrwkhu duwlfoh +Jd|hu dqg
Vk|/ 5334e,/ wkh vdph dxwkruv lqyhvwljdwh krz surgxfhuv ri gljlwdo lqirupdwlrq
jrrgv fdq xwlol}h wkh Lqwhuqhw*v glvwulexwlrq fkdqqhov/ vxfk dv shhu0wr0shhu v|v0
whpv/ wr hqkdqfh vdohv ri wkhlu jrrgv vrog lq vwruh1 Wkh zhoiduh lpsolfdwlrqv
ri shhu0wr0shhu glvwulexwlrq whfkqrorjlhv duh dovr wkh frqfhuq ri Gxfkíqh dqg
Zdhoeurhfn +5334,> wkh| vkrz wkdw wkh orvvhv jhqhudwhg e| loohjdo frslhv fdq
eh rvhw e| wkh lqwurgxfwlrq ri qhz surgxfwv/ zklfk fuhdwhv d srvlwlyh vxusoxv
iru wkhlu fuhdwruv/ dv zhoo dv frqvxphuv1 Wkh lghd wkdw frs|uljkw lqiulqjhphqw
frxog eh vwudwhjlfdoo| surprwhg e| fuhdwruv lv dovr h{soruhg e| Ehq0Vkdkdu dqg
Mdfre +5334,> wkh| vkrz/ lq d g|qdplf prgho/ wkdw fuhdwruv pljkw idyru vh0
ohfwlyh frs|uljkw hqirufhphqw dv d irup ri suhgdwru| sulflqj lq rughu wr udlvh
eduulhuv wr hqwu|1 Wxuqlqj wr srolf| pdwwhuv/ Kduedxjk dqg Nkhpnd +5334, du0
jxh wkdw frs|uljkw hqirufhphqw wdujhwhg dw kljk0ydoxh ex|huv udlvhv frs|uljkw
kroghu surwv exw/ dw wkh vdph wlph/ lqfuhdvhv sludf| uhodwlyh wr qr hqirufh0
phqw> wkhuhiruh/ wkh| frqwhqg wkdw hlwkhu qr hqirufhphqw ru uhodwlyho| h{whqvlyh
hqirufhphqw lv wkh ehvw srolf| djdlqvw Lqwhuqhw sludf|1 Lq wkh vdph yhlq/ Fkhq
dqg Sqj +5334, h{dplqh krz wkh jryhuqphqw vkrxog vhw wkh qh iru frs|lqj/
wd{ rq frs|lqj phglxp/ dqg vxevlg| rq ohjlwlpdwh sxufkdvhv/ zkloh d prqrsro|
sxeolvkhu vhwv sulfh dqg vshqglqj rq ghwhfwlrq> wkh| frqfoxgh wkdw jryhuqphqw
srolflhv irfxvvlqj rq shqdowlhv dorqh zrxog plvv wkh vrfldo zhoiduh rswlpxp1
\rrq +5334, dovr dlpv dw ghwhuplqlqj wkh rswlpdo ohyho ri frs|uljkw surwhfwlrq
iru dq lqglylgxdo surgxfhu dqg iru vrflhw| dv d zkroh1 Ilqdoo|/ Kxl/ Sqj dqg
Fxl + 5334, surylgh rqh ri wkh uduh dwwhpswv wr hvwlpdwh hpslulfdoo| wkh dfwxdo
lpsdfw ri sludf| rq wkh ohjlwlpdwh ghpdqg iru lqirupdwlrq jrrgv1 Xvlqj lqwhu0
qdwlrqdo sdqho gdwd iru pxvlf FGv dqg fdvvhwwhv/ wkh| qg wkdw wkh ghpdqg iru
erwk jrrgv ghfuhdvhg zlwk sludf|1
Wkhvh uhfhqw frqwulexwlrqv uhylyh wkh olwhudwxuh rq wkh hfrqrplfv ri frs|lqj
dqg frs|uljkw/ zklfk zdv lqlwldwhg vrph wzhqw| |hduv djr16 Wkh vhplqdo sd0
shuv glvfxvvhg wkh hhfwv ri skrwrfrs|lqj dqg h{dplqhg/ dprqj rwkhu wklqjv/
5
Vrxufhv= +l, Sursrvhg dqwl0sludf| eloo gudzv uh/ e| Vwhidqlh Rovhq +FQHW Qhzv1frp/
Pdufk 58/ 5335,/ +ll, Pdq idfhv mdlo iru Zhe vdohv ri FGv/ e| Olvd P1 Erzpdq +FQHW
Qhzv1frp/ Pdufk 55/ 5335,/ +lll, Jrrge|h Qdsvwhu/ Khoor Pruskhxv +dqg Dxglrjdod{| dqg
Nd}dd dqg Jurnvwhu111,/ e| Hulfn Vfkrqihog +Exvlqhvv51frp/ Pdufk 48/ 5335,/ +ly, Gljlwdo
Pxvlf Iljkw Wudsv Uhwdlohuv/ e| Ehqq| Hydqjholvwd +Qhzvidfwru1frp/ Pdufk 45/ 5335,/ +y,
Frqvxphu fodlpv ylfwru| lq FG odzvxlw/ e| Olvd P1 Erzpdq +FQHW Qhzv1frp/ Iheuxdu| 55/
5335,/ +yl, Soxj sxoohg rq vlwh vhoolqj '4 prylhv/ e| Mrkq Eruodqg +FQHW Qhzv1frp/ Iheuxdu|
4</ 5335,1
6
Zlwk wkh qrwdeoh h{fhswlrq ri Sodqw +4<67,1

6
krz sxeolvkhuv fdq dssursuldwh lqgluhfwo| vrph uhyhqxhv iurp loohjlwlpdwh xvhuv
+Qryrv dqg Zdogpdq/ 4<;7/ Olherzlw}/ 4<;8/ Mrkqvrq/ 4<;8/ dqg Ehvhq dqg
Nlue|/ 4<;<,1 Wkh hfrqrplfv ri LS surwhfwlrq zdv wkhq dgguhvvhg pruh jhqhu0
doo| e| Odqghv dqg Srvqhu +4<;<, dqg Ehvhq dqg Udvnlqg +4<<4,1 Erwk sdshuv
glvfxvv wkh iroorzlqj wudgh0r ehwzhhq h{ dqwh dqg h{ srvw h!flhqf| frqvlghu0
dwlrqv1 Iurp dq h{ dqwh srlqw ri ylhz/ LS surwhfwlrq suhvhuyhv wkh lqfhqwlyh wr
fuhdwh lqirupdwlrq jrrgv/ zklfk +dv dujxhg deryh, duh lqkhuhqwo| sxeolf +devhqw
dssursuldwh surwhfwlrq/ fuhdwruv pljkw qrw eh deoh wr uhfrxs wkhlu srwhqwldoo|
kljk lqlwldo fuhdwlrq frvwv,1 Rq wkh rwkhu kdqg/ LS uljkwv hqfrpsdvv ydulrxv
srwhqwldo lqh!flhqflhv iurp dq h{ srvw srlqw ri ylhz +surwhfwlrq judqwv gh idfwr
prqrsro| uljkwv/ zklfk jhqhudwhv wkh vwdqgdug ghdgzhljkw orvvhv> dovr/ e| lq0
klelwlqj lplwdwlrq/ LS uljkwv pljkw olplw wkh fuhdwruv* delolw| wr eruurz iurp/ ru
exlog xsrq/ hduolhu zrunv/ dqg wkhuhe| lqfuhdvh wkh frvw ri surgxflqj qhz lghdv,1
D wklug zdyh ri sdshuv sdlg forvhu dwwhqwlrq wr vriwzduh pdunhwv dqg lqwurgxfhg
qhwzrun hhfwv lq wkh dqdo|vlv1 Frqqhu dqg Uxphow +4<<4,/ Wdnh|dpd +4<<7,/
dqg Vk| dqg Wklvvh +4<<<, vkduh wkh iroorzlqj dujxphqw= ehfdxvh sludf| hq0
odujhv wkh lqvwdoohg edvh ri xvhuv/ lw jhqhudwhv qhwzrun hhfwv wkdw lqfuhdvh wkh
ohjlwlpdwh xvhuv* zloolqjqhvv wr sd| iru wkh vriwzduh dqg/ wkhuhe|/ srwhqwldoo|
udlvhv wkh surgxfhu*v surwv1 Ilqdoo|/ dqg pruh forvho| uhodwhg wr wklv sdshu/
Zdww +5333, kdv vxuyh|hgdqg h{whqvlyho| vxssohphqwhgwkh olwhudwxuh rq wkh
hfrqrplfv ri frs|uljkw1
Wkh dlp ri wkh suhvhqw sdshu lv wr dgguhvv vhyhudo ri wkh wkhphv vwxglhg
vr idu lq wkh olwhudwxuh zlwklq d vlpsoh dqg xqlhg prgho1 Olnh d qxpehu ri
uhfhqw sdshuv/ zh xvh wkh iudphzrun sursrvhg e| Pxvvd dqg Urvhq +4<:;, iru
prghoolqj yhuwlfdo +txdolw|, glhuhqwldwlrq= frslhv duh vhhq dv orzhu0txdolw| do0
whuqdwlyhv wr ruljlqdov +l1h1/ li frslhv dqg ruljlqdov zhuh sulfhg wkh vdph/ doo
frqvxphuv zrxog suhihu ruljlqdov,1 Lq d ehqfkpdun prgho/ zh frqvlghu wkh
pdunhw iru d vlqjoh lqirupdwlrq jrrg1 D prqrsrolvw pxvw vhw wkh sulfh iru wkh
ruljlqdo jrrg/ wdnlqj lqwr dffrxqw wkdw frqvxphuv fdq dowhuqdwlyho| dftxluh d
orzhu0txdolw| frs| dw d frqvwdqw frvw1 Wkh rswlpdo vwudwhj| iru wkh prqrsrolvw
fdq xvhixoo| eh ghvfulehg e| xvlqj Edlq +4<89,*v wd{rqrp| ri dq lqfxpehqw*v
ehkdylru lq wkh idfh ri dq hqwu| wkuhdw1 Xqohvv wkh txdolw|2sulfh udwlr ri frslhv
lv yhu| orz +phdqlqj wkdw frs|lqj h{huwv qr wkuhdw dqg zloo wkhuhiruh eh ceorfn0
dghg*,/ wkh surgxfhu zloo kdyh wr prgli| klv ehkdylru dqg ghflgh zkhwkhu wr
vhw d sulfh orz hqrxjk wr cghwhu* frs|lqj/ ru wr cdffrpprgdwh* frs|lqj dqg
pdnh xs iru lw e| h{wudfwlqj d kljkhu pdujlq iurp ihzhu frqvxphuv ri ruljlqdov1
Zkdwhyhu wkh surgxfhu*v rswlpdo ghflvlrq/ zh vkrz wkdw frs|lqj uhgxfhv wkh
surgxfhu*v surwv exw lqfuhdvhv frqvxphuv vxusoxv pruh wkdq sursruwlrqdoo|=
dv d uhvxow/ frs|lqj +zklfk dprxqwv khuh wr wkh surylvlrq ri d fkhdshu dqg
orzhu0txdolw| dowhuqdwlyh wr d prqrsrol}hg jrrg, hqkdqfhv vrfldo zhoiduh1
Wkh suhylrxv frqfoxvlrq vlpso| uhvwdwhv wkh h{ srvw h!flhqf| frqvlghudwlrq
ri wkh wudglwlrqdo hfrqrplf dqdo|vlv ri frs|lqj= li wkh lqirupdwlrq jrrg zdv

7
+ohjdoo| ru whfkqlfdoo|, ehwwhu surwhfwhg/ wkh surgxfhu zrxog ixoo| hqmr| klv
prqrsro| srvlwlrq dqg vrfldo zhoiduh zrxog eh uhgxfhg1 Dv dujxhg deryh/ vxfk
h{ srvw lqh!flhqf| kdv wr eh edodqfhg djdlqvw h{ dqwh frqvlghudwlrqv uhodwlqj
wr fuhdwlrq frvwv1 Wr lqfrusrudwh wklv glphqvlrq/ zh h{whqg wkh ehqfkpdun
prgho e| frqvlghulqj dq duelwudu| qxpehu ri lqirupdwlrq jrrgv1 Wkh Pxvvd0
Urvhq iudphzrun frqwlqxhv wr dsso| iru hdfk lqirupdwlrq jrrg1 Pruhryhu/ wr
irfxv rq wkh hhfwv ri frs|lqj/ zh dvvxph wkdw frs|lqj lv wkh rqo| vrxufh ri
lqwhughshqghqfh ehwzhhq wkh ghpdqgv iru wkh ydulrxv lqirupdwlrq jrrgv1 Lq
sduwlfxodu/ wkh jrrgv duh frpsohwho| glhuhqwldwhg dqg frqvxphuv duh dvvxphg
wr kdyh d vx!flhqw +h{rjhqrxv, exgjhw wr ex| wkhp doo li wkh| vr zlvk1
Zkhwkhu ghpdqgv duh lqwhughshqghqw ru qrw ghshqgv rq wkh qdwxuh ri frs|0
lqj whfkqrorj|1 Lq wkh vslulw ri Mrkqvrq +4<;8,/ zh h{dplqh wzr h{wuhph vfh0
qdulrv= wkh frs|lqj whfkqrorj| lqyroyhv hlwkhu d frqvwdqw xqlw frvw dqg qr {hg
frvw/ ru d srvlwlyh {hg frvw dqg qr pdujlqdo frvw1 Lq wkh iruphu fdvh/ gh0
pdqgv iru ruljlqdov duh frpsohwho| lqghshqghqw ri rqh dqrwkhu= doo surgxfhuv
dfw wkxv olnh wkh vlqjoh0jrrg prqrsrolvw ri wkh ehqfkpdun prgho1 Dvvxplqj
d {hg fuhdwlrq frvw wkdw ydulhv wkurxjk surgxfhuv/ zh fdq ghulyh wkh qxpehu
ri lqirupdwlrq jrrgv wkdw duh fuhdwhg dw wkh orqj0uxq/ iuhh0hqwu|/ htxloleulxp1
Reylrxvo|/ frs|lqj uhgxfhv wklv qxpehu1 Zh fdq wkhq edodqfh h{ dqwh dqg h{
srvw h!flhqf| frqvlghudwlrqv dqg vkrz wkdw frs|lqj lv olnho| wr gdpdjh zhoiduh
lq wkh orqj uxq +xqohvv frslhv duh d srru dowhuqdwlyh wr ruljlqdov dqg2ru duh
h{shqvlyh wr dftxluh,1
Wkh slfwxuh fkdqjhv gudpdwlfdoo| zkhq wkh frs|lqj whfkqrorj| lqyroyhv rqo|
d srvlwlyh {hg frvw1 Wkh ghpdqgv iru ruljlqdov qrz ehfrph lqwhughshqghqw
ehfdxvh frqvxphuv edvh wkhlu ghflvlrq wr lqyhvw lq wkh frs|lqj whfkqrorj| rq
wkh frvw ri wklv whfkqrorj| dqg rq wkh sulfhv ri doo ruljlqdov1 Wkhuhiruh/ frs|lqj
lqwurgxfhv vwudwhjlf lqwhudfwlrq ehwzhhq wkh surgxfhuv ri ruljlqdov zkrp hyhu|0
wklqj hovh rwkhuzlvh vhsdudwhv1 Wklv vwudwhjlf lqwhudfwlrq pdnhv wkh surgxfhuv*
sulflqj ehkdylru +zklfk wdnhv wkh irup ri d vlpxowdqhrxv Ehuwudqg jdph, pruh
lqwhuhvwlqjexw dovr pxfk pruh lqwulfdwhwr dqdo|}h1 Gxh wr wkh frpsoh{lw| ri
wkh v|vwhp ri ghpdqgv/ zh duh xqdeoh wr surylgh d frpsohwh fkdudfwhul}dwlrq
ri wkh vhw ri Ehuwudqg0Qdvk htxloleuld1 Zh vkhg/ qhyhuwkhohvv/ vrph oljkw rq
v|pphwulf htxloleuld lq zklfk frs|lqj lv hlwkhu eorfndghg/ ghwhuuhg ru dffrp0
prgdwhg1 Zh vkrz/ lq sduwlfxodu/ wkdw wkh odwwhu wzr htxloleuld uho| rq d vhw ri
udwkhu uhvwulfwlyh frqglwlrqv/ dv wkh lqfhqwlyhv iru xqlodwhudo ghyldwlrq duh kljk=
surgxfhuv whqg wr iuhh0ulgh +e| vhwwlqj kljkhu sulfhv, zkhq lw frphv wr ghwhuulqj
frs|lqj/ ru wkh| whqg wr xqghufxw zkhq lw frphv wr dffrpprgdwlqj frs|lqj1
Wkh uhvw ri wkh sdshu lv rujdql}hg dv iroorzv1 Lq Vhfwlrq 5/ zh od| rxw d
ehqfkpdun prgho zlwk d vlqjoh lqirupdwlrq jrrg dqg zh dqdo|}h wkh vkruw0uxq
zhoiduh hhfwv ri frs|lqj1 Wkhq/ zh h{whqg wkh ehqfkpdun prgho wrzdugv d
pxowl0jrrg vhwwlqj lq wzr glhuhqw zd|v1 Lq Vhfwlrq 6/ zh dvvxph wkdw frs|lqj
lqyroyhv d frqvwdqw pdujlqdo frvw dqg qr {hg frvw1 Xqghu wklv dvvxpswlrq/

8
zh h{dplqh wkh orqj0uxq zhoiduh hhfwv ri frs|lqj1 Lq Vhfwlrq 7/ zh dvvxph
lqvwhdg wkdw frs|lqj lqyroyhv d srvlwlyh {hg frvw dqg qr pdujlqdo frvw1 Gxh wr
wkh lqwulfdflhv ri wkh prgho xqghu wklv dowhuqdwlyh dvvxpswlrq/ zh ohdyh zhoiduh
frqvlghudwlrqv dvlgh dqg wu| lqvwhdg wr xqudyho wkh frpsoh{ vlwxdwlrq ri vwudwhjlf
lqwhudfwlrq wkdw frs|lqj lqgxfhv ehwzhhq surgxfhuv ri ruljlqdov1 Zh frqfoxgh
dqg sursrvh dq djhqgd iru ixwxuh uhvhdufk lq Vhfwlrq 81 Ilqdoo|/ zh surylgh wkh
surriv ri wkh pdlq sursrvlwlrqv lq Vhfwlrq 91

5 D vlpsoh vlqjoh0jrrg prgho

Zh vwduw e| frqvlghulqj d yhu| vlpsoh pdunhw iru dq lqirupdwlrq jrrg vxssolhg
e| d vlqjoh surgxfhu17 Zh xvh wkh iudphzrun sursrvhg e| Pxvvd dqg Urvhq
+4<:;, iru prghoolqj yhuwlfdo +txdolw|, glhuhqwldwlrq1 Wkhuh lv d frqwlqxxp ri
srwhqwldo xvhuv zkr duh fkdudfwhul}hg e| wkhlu ydoxdwlrq/ / iru wkh lqirupdwlrq
jrrg1 Zh dvvxph wkdw  lv xqlirupo| glvwulexwhg rq wkh lqwhuydo ^3> 4`1 Hdfk
xvhu fdq rewdlq wkh lqirupdwlrq jrrg lq wzr glhuhqw zd|v1 Rqh srvvlelolw| lv
wr ex| wkh ohjlwlpdwh surgxfw +dq ruljlqdo, dw sulfh s1 Ruljlqdov duh surgxfhg
e| d vlqjoh surgxfhu dw }hur pdujlqdo frvw1 Wkh dowhuqdwlyh lv wr dftxluh d frs|
ri wkh surgxfw dw d frvw f  3= +Lq erwk fdvhv/ hdfk xvhu frqvxphv dw prvw rqh
xqlw ri wkh lqirupdwlrq jrrg1, Wkh wzr yduldqwv ri wkh lqirupdwlrq jrrg duh
lqgh{hg e| wkhlu txdolw|= ohw vJ A 3 ghqrwh wkh txdolw| ri dq ruljlqdo dqg vS
+zlwk 3 ? vS ? vJ ,/ wkh txdolw| ri d frs|1
Wkh frvw f fdq eh wkrxjkw ri dv wkh sulfh ri dq loohjlwlpdwh frs| vrog e|
vrph odujh0vfdoh sludwh/ ru dv wkh frvw ri wkh frs|lqj phglxp1 Zh glvfxvv wkh
suhflvh qdwxuh ri wklv frvw dw wkh hqg ri wkh suhvhqw vhfwlrq +iru wkh prphqw/ zh
uhihu wr dq| phdqv ri xvlqj wkh lqirupdwlrq jrrg zlwkrxw ex|lqj dq ruljlqdo dv
cfrs|lqj*,1 Wkh dvvxpswlrq wkdw wkh txdolw| ri d frs| lv orzhu wkdq wkh txdolw|
ri dq ruljlqdo +vS ? vJ , lv frpprq +vhh/ h1j1/ Jd|hu dqg Vk|/ 5334d, dqg pd|
eh mxvwlhg lq vhyhudo zd|v1 Lq wkh fdvh ri dqdorj uhsurgxfwlrq/ frslhv uhsuhvhqw
srru vxevwlwxwhv wr ruljlqdov1 Iru lqvwdqfh/ hyhq wkh ehvw skrwrfrs|lqj orvhv
lqirupdwlrq vxfk dv qh olqhv/ qh sulqw dqg wuxh froru lpdjhv1 Ixuwkhupruh/
frslhv ri dqdorj phgld duh udwkhu frvwo| wr glvwulexwh1 Dowkrxjk wklv lv qr orqjhu
wuxh iru gljlwdo uhsurgxfwlrq/ ruljlqdov pljkw vwloo surylgh xvhuv zlwk d kljkhu
ohyho ri vhuylfhv/ lqvridu dv wkdw wkh| duh exqgohg zlwk ydoxdeoh frpsohphqwdu|
surgxfwv zklfk fdq kdugo| eh rewdlqhg rwkhuzlvh18
7
\rrq +5334, lqghshqghqwo| ghyhorshg d yhu| vlplodu prgho1
8
Iru lqvwdqfh/ pdq| slhfhv ri vriwzduh frph zlwk iuhh pdqxdov dqg vxssruwlqj vhuylfhv/
ru zlwk glvfrxqw rq xsjudghv/ doo dgydqwdjhv wkdw xvhuv zkr sludwh wkh vriwzduh zloo kdyh wr
dftxluh dw d srvlwlyh sulfh1

9
 Dffruglqjo|/ d xvhu lqgh{hg e|  kdv d xwlolw| ixqfwlrq ghqhg e|
;
A
? vJ  s li ex|lqj dq ruljlqdo/
Xw @ vS  f li frs|lqj/ +4,
A
= 3 li qrw xvlqj wkh lqirupdwlrq jrrg1

Zh dvvxph wkdw f ? vS / vr wkdw wkh xvhu zlwk wkh kljkhvw ydoxdwlrq iru wkh
surgxfw lv ehwwhu r frs|lqj wkdq qrw xvlqj wkh surgxfw +rwkhuzlvh/ frs|lqj
zrxog wulyldoo| qrw eh dq lvvxh,1

514 Xvhu ehkdylru

D xvhu lqgh{hg e|  zloo ex| wkh ohjlwlpdwh surgxfw xqghu wkh iroorzlqj wzr
frqglwlrqv1 Iluvw/ ex|lqj pxvw surylgh d kljkhu xwlolw| wkdq qrw xvlqj= vJ  s=
Vhfrqg/ ex|lqj pxvw surylgh d kljkhu xwlolw| wkdq frs|lqj= vJ  s  vS  f/
zklfk lv htxlydohqw wr
sf
    =
vJ  vS
Fohduo|/ wkh odwwhu lqhtxdolw| fdqqrw eh phw li ruljlqdov duh wrr h{shqvlyh +li
s A vJ  vS . f/  A 4 dqg qr xvhu ex|v dq ruljlqdo,1
Rq wkh rwkhu kdqg/ wkh xvhu  zloo frs| wkh surgxfw li wkh suhylrxv frqglwlrq
lv uhyhuvhg + ?  , dqg li frs|lqj surylghv d kljkhu xwlolw| wkdq qrw xvlqj=
vS  f  3/ ru
f
  2  =
vS
Wkhvh wzr lqhtxdolwlhv duh lqfrpsdwleoh/ phdqlqj wkdw qr xvhu qgv lw surwdeoh
wr frs|/ li wkh sulfh ri ruljlqdov lv orz hqrxjk1 Lqghhg/ s  s  fvJ @vS lpsolhv
wkdw     2 1 Qrwh wkdw wkh colplw sulfh* s ghfuhdvhv dv frslhv ehfrph uhodwlyho|
pruh dwwudfwlyh +l1h1/ dv f dqg vJ @vS ghfuhdvh,1
Wkhuh duh wkxv wkuhh ghpdqg uhjlphv1 Iluvw/ li wkh sulfh ri wkh ohjlwlpdwh
surgxfw lv wrr kljk +li s  vJ  vS . f,/ wkhq qr xvhu zloo ex| wkh ohjlwlpdwh
surgxfw19 Vhfrqg/ iru lqwhuphgldwh sulfhv +l1h1/ iru fvJ @vS  s  vJ  vS . f,/
xvhuv lqgh{hg rq ^ > 4` ex| wkh ohjlwlpdwh surgxfw/ xvhuv lqgh{hg rq ^ 2 >   ` frs|
wkh surgxfw/ rwkhuv gr qrw xvh1 Ilqdoo|/ iru orz sulfhv +l1h1/ iru 3  s  fvJ @vS ,/
xvhuv lqgh{hg rq ^s@vJ > 4` ex| wkh ohjlwlpdwh surgxfw/ zklovw rwkhuv gr qrw xvh1
Froohfwlqj wkh suhylrxv uhvxowv/ zh fdq zulwh wkh ghpdqg ixqfwlrq iru ruljlqdov=
;
A
? 3 iru s  vJ  vS . f>
R3S
G+s, @ 4  rJ 3rS iru Sr J
 s  vJ  vS . f> +5,
A
= 4 R
rS

rJ
iru 3  s  rS =
SrJ

9
Dowkrxjk xvhuv lqgh{hg rq dw2 c o duh wkhruhwlfdoo| ehwwhu r zkhq wkh| frs| wkh surgxfw/
frs|lqj grhv qrw dsshdu dv d ihdvleoh rswlrq zkhq qr ruljlqdov flufxodwh1

:
515 Surgxfhu*v ehkdylru
Wkh surgxfhu*v sureohp lv wr fkrrvh wkh sulfh s ri wkh ohjlwlpdwh surgxfw vr dv wr
pd{lpl}h surwv/ sG+s,/ zlwk ghpdqg jlyhq e| h{suhvvlrq +5,1 Wkh surgxfhu*v
sureohp lv frpsolfdwhg e| wkh idfw wkdw vrph xvhuv duh ehwwhu r frs|lqj wkh
surgxfw rqfh wkh sulfh h{fhhgv vrph wkuhvkrog1 Wkhuh lv wkxv d nlqn lq wkh
ghpdqg fxuyh dqg wkh surgxfhu kdv wr fkrrvh lq zklfk vhjphqw ri wkh ghpdqg
fxuyh wr rshudwh1 E| dqdorj| zlwk Edlq +4<89,*v wd{rqrp| ri dq lqfxpehqw*v
ehkdylru lq wkh idfh ri dq hqwu| wkuhdw/ zh zloo vd| wkdw wkh surgxfhu lv hlwkhu
deoh wr ceorfndgh* frs|lqj/ ru wkdw kh pxvw ghflgh zkhwkhu wr cghwhu* frs|lqj
ru cdffrpprgdwh* lw1 Ohw xv qrz ghqh dqg frpsduh wkhvh wkuhh rswlrqv1

Wkh surgxfhu eorfndghv ru ghwhuv frs|lqj1 E| vhwwlqj d sulfh vx!flhqwo|

orz/ wkh surgxfhu fdq holplqdwh frs|lqj1 Wkh surgxfhu*v pd{lpl}dwlrq surjudp
lv wkhq
 
s fvJ
pd{ +s, @ s 4  v1w1 s  = +6,
R vJ vS
Wkh xqfrqvwudlqhg surw0pd{lpl}lqj sulfh dqg surwv duh hdvlo| frpsxwhg dv
vJ vJ
sK @ > K @ =
5 7
Wklv vroxwlrq phhwv wkh frqvwudlqwv li dqg rqo| li f  vS @51 Lq wklv fdvh/ zh
fdq vd| wkdw frs|lqj lv dfwxdoo| eorfndghg= wkh surgxfhu vdiho| vhwv klv sulfh dv
li frs|lqj zdv qrw d wkuhdw1 Rwkhuzlvh/ frs|lqj fdqqrw eh eorfndghg exw wkh
surgxfhu prglhv klv ehkdylru wr vxffhvvixoo| ghwhu frs|lqj= kh zloo fkrrvh wkh
kljkhvw sulfh frpsdwleoh zlwk wkh frqvwudlqwv/ l1h1
fvJ fvJ +vS  f,
s_ @ > zklfk lpsolhv  _ @ =
vS v2S

Wkh surgxfhu dffrpprgdwhv frs|lqj1 Wkh rwkhu rswlrq lv wr vhw d kljkhu

sulfh dqg wrohudwh frs|lqj1 Wkh surgxfhu*v surjudp ehfrphv
 
sf fvJ
pd{ +s, @ s 4  v1w1  s  vJ  vS . f= +7,
R vJ  vS vS
Khuh/ wkh xqfrqvwudlqhg surw0pd{lpl}lqj sulfh lv htxdo wr

vJ  vS . f +vJ  vS . f,2
s@ @ > zklfk lpsolhv  @ @ =
5 7 +vJ  vS ,
Wklv vroxwlrq vdwlvhv wkh frqvwudlqwv li dqg rqo| li
vJ  vS . f fvJ vS +vJ  vS ,
 +, f  =
5 vS 5vJ  vS
Li wkh odwwhu frqglwlrq lv qrw phw/ lw lv hdvlo| fkhfnhg wkdw wkh fruqhu vroxwlrq lv
htxlydohqw wr frs|lqj ghwhuuhqfh1

;
Eorfndgh/ ghwhu ru dffrpprgdwhB Froohfwlqj wkh suhylrxv uhvxowv/ zh re0
vhuyh wkdw wkh surgxfhu*v rswlpdo vwudwhj| ghshqgv rq wkh uhodwlyh dwwudfwlyhqhvv
ri frslhv +l1h1/ iru d jlyhq ydoxh ri vJ > rq wkh ydoxhv ri f dqg vS ,/ dv vxppdul}hg
lq Sursrvlwlrq 4 dqg looxvwudwhg lq Iljxuh 4 +zklfk lv gudzq iru vJ @ 4,1

Sursrvlwlrq 4 Wkh surgxfhu*v surw0pd{lpl}dwlrq sulfh lv


 sK @ r2J > iru r2S  f  vS +frs|lqj lv eorfndghg,/



iru rS2ErrJJ33rrSS   f  r2S

 s_ @ Sr J
> +frs|lqj lv ghwhuuhg,/
 rS


 s @ rJ 3rS nS > iru 3  f  rS ErJ 3rS  +frs|lqj lv dffrpprgdwhg,1
@ 2 2rJ 3rS

^Lqvhuw Iljxuh 4 derxw khuh`

516 Zhoiduh hhfwv ri frs|lqj lq wkh vkruw uxq

Qrz wkdw zh kdyh fkdudfwhul}hg wkh surgxfhu*v sulflqj ehkdylru/ zh duh lq d sr0
vlwlrq wr h{dplqh krz frs|lqj dhfwv zhoiduh1 Rxu ehqfkpdun lv d k|srwkhwlfdo
hfrqrp| zkhuh frs|lqj zrxog eh lqihdvleoh> lq wklv fdvh/ wkh surgxfhu zrxog
dfw dv dq xqfrqvwudlqhg prqrsrolvw/ zklfk fruuhvsrqgv wr wkh fdvh ri eorfn0
dghg frs|lqj +ghqhg deryh e| wkh frqglwlrq f  vS @5,1 Frqvxphu vxusoxv
+VK , dqg vrfldo zhoiduh +ZK , lq wklv k|srwkhwlfdo hfrqrp| duh uhdglo| frpsxwhg
dv iroorzv=
] 
VK @ +vJ  s, g @ vJ @;>
RK *rJ

ZK @  K . VK @ 6vJ @;=

Frslhv duh uhodwlyho| xqdwwudfwlyh1 Li vS +vJ  vS , @ +5vJ  vS ,  f  vS @5>

zh nqrz wkdw wkh surgxfhu suhihuv wr ghwhu frs|lqj1 Lq wklv fdvh/ wkh rqo|
hhfw ri frs|lqj lv wr irufh wkh surgxfhu wr vhw d orzhu sulfh wkdq wkh rqh
kh zrxog vhw li frs|lqj h{huwhg qr wkuhdw +s_ ? sK ,1 Dowkrxjk pruh xvhuv
ex| wkh ohjlwlpdwh surgxfw/ wkh surgxfhu*v surw idoov/ phdqlqj wkdw frs|lqj
kxuwv klp + _ ?  K ,1 Krzhyhu/ wkh frqvxphu vxusoxv fohduo| lqfuhdvhv dqg
wklv lqfuhdvh rvhwv wkh uhgxfwlrq lq surw/ zklfk uhvxowv lq dq lqfuhdvh lq
vrfldo zhoiduh +frpsxwhg dv wkh vxp ri frqvxphu vxusoxv dqg surgxfhu*v surw,=
 
Z_ @ vJ v2S  f2 @5v2S A ZK @ 6vJ @;1 Wkh srvvlelolw| ri pdnlqj frslhv fdq eh
vhhq dv d srwhqwldo frpshwlwlrq wkdw glvflsolqhv wkh surgxfhu ri wkh ohjlwlpdwh
surgxfw lq d zhoiduh0hqkdqflqj zd|1

<
Frslhv duh uhodwlyho| dwwudfwlyh1 Iru orzhu ydoxhv ri f +l1h1/ f  vS +vJ  vS , @
+5vJ  vS ,,/ frs|lqj lv dffrpprgdwhg1 Wkh zhoiduh dqdo|vlv ehfrphv d elw pruh
frpsolfdwhg dqg dovr pruh lqvwuxfwlyh1 Wkhuh duh qrz xvhuv zkr jhw d srvlwlyh
vxusoxv e| frs|lqj wkh ohjlwlpdwh surgxfw dqg wkh| kdyh wr eh wdnhq lqwr df0
frxqw lq wkh zhoiduh dqdo|vlv1 Frqvlghu uvw wkh surgxfhu1 Ehlqj mxvw d wkuhdw
+dv lq wkh suhylrxv fdvh, ru dq dfwxdo idfw +dv khuh,/ frs|lqj kdv wkh vdph hhfw
rq wkh surgxfhu*v sulflqj ehkdylru= sulfh kdv wr jr grzq +wkrxjk ohvv wkdq
xqghu wkh ghwhuuhqfh rswlrq/ s_ ? s@ ? sK , dqg wkh lqfuhdvhg ghpdqg wklv
jhqhudwhv lv qrw hqrxjk wr suhyhqw surw iurp idoolqj + @ ?  K ,1 Vr/ dv lq wkh
suhylrxv fdvh/ wkh surgxfhu ri wkh ohjlwlpdwh surgxfw vxhuv iurp frs|lqj1 Lw
fdq eh dujxhg wkdw/ iurp d vrfldo srlqw ri ylhz/ wkhuh lv qr uhdvrq wr zruu|
derxw wkh suhylrxv uhvxow= frs|lqj kdv wkh dgydqwdjh ri euhdnlqj grzq wkh
prqrsro| wkh surgxfhu zrxog hqmr| rwkhuzlvh1 Dv zh kdyh mxvw vkrzq/ frs|lqj
ohdgv wr d orzhu sulfh dqg d kljkhu txdqwlw| frqvxphg= ohjlwlpdwh xvhuv hqmr|
wkxv d odujhu vxusoxv1 Pruhryhu/ li zh dovr lqfrusrudwh wkh vxusoxv hqmr|hg e|
loohjdo xvhuv/ zh qg djdlq wkdw frs|lqj kdv d srvlwlyh lpsdfw rq zhoiduh1
Wr hvwdeolvk wklv uhvxow/ zh frpsxwh wkh vxusoxv iru ohjlwlpdwh dqg loohjlwl0
pdwh xvhuv zkhq frs|lqj lv dffrpprgdwhg uhvshfwlyho| dv
]  ] R@ S3
3
rJ rS
VO@ @ +vJ  s@ , g dqg VL@ @ +vS  f, g=
3
R@ S S
3
rJ rS rS

Zh wkhq frpsxwh vrfldo zhoiduh dv Z@ @  @ . V@ / zlwk V@ @ VO@ . VL@ / dqg

zh revhuyh wkdw
4 +7vJ  vS , f2 . vS +vS  5f, +vJ  vS ,
Z@  ZK @ A 3= +8,
; vS +vJ  vS ,
Zh uhfrug wkh deryh wzr qglqjv lq wkh iroorzlqj sursrvlwlrq1

Sursrvlwlrq 5 Vr orqj dv lw fdqqrw eh eorfndghg/ frs|lqj lpsuryhv vrfldo zho0

iduh lq wkh vkruw uxq1

Wkh lqwxlwlrq xqghuo|lqj Sursrvlwlrq 5 lv reylrxv1 E| lqwurgxflqj d fkhdshu

lpshuihfw vxevwlwxwh iru ruljlqdov/ frs|lqj uhgxfhv wkh prqrsro| srzhu ri wkh
surgxfhu dqg/ wkhuhe|/ lqfuhdvhv vrfldo zhoiduh1 Wklv uhvxow pxvw/ krzhyhu/ eh
txdolhg lq rqh lpsruwdqw zd|1 Prvw jhqhudoo|/ wkh fuhdwlrq ri lqirupdwlrq
jrrgv lqyroyhv vxevwdqwlyh {hg cuvw0frs|* frvwv1 Vr idu/ zh kdyh devwudfwhg
wklv {hg frvw dzd| e| dvvxplqj lpsolflwo| wkdw wkh surgxfhu frxog fryhu lw
hyhq zkhq kh kdg wr dffrpprgdwh frs|lqj1 Wkdw lv/ qrwlqj wkh {hg fuhdwlrq
frvw e| I / zh kdyh dvvxphg wkdw  @ A I 1 Lw lv rqo| xqghu wkdw dvvxpswlrq
wkdw wkh deryh uhvxow krogv1 Lqghhg/ li zh kdg lqvwhdg wkdw  K A I A  @ / wkh
surgxfhu zrxog qrw fuhdwh wkh lqirupdwlrq jrrg li kh kdg qr rwkhu fkrlfh wkdq
wr dffrpprgdwh frs|lqj1 Lq vxfk d fdvh/ frs|lqj zrxog fohduo| uhgxfh vrfldo
zhoiduh1

43
Orqj0uxq shuvshfwlyh1 Lq wkh qh{w wzr vhfwlrqv/ zh h{dplqh wkh suhylrxv
lvvxh pruh forvho| e| frqvlghulqj d pxowl0surgxfw iudphzrun1 Pruh suhflvho|/ zh
h{whqg wkh ehqfkpdun prgho e| dvvxplqj wkdw xvhuv qrz kdyh wkh srvvlelolw|
wr frqvxph iurp d vhw J ri lqirupdwlrq jrrgv +zlwk mJm  5,1 Dv ehiruh/
frqvxphuv fkrrvh/ iru hdfk surgxfw/ wr hlwkhu ex| dq ruljlqdo/ pdnh d frs|/
ru qrw frqvxph dw doo1 Zh pdnh wkh iroorzlqj dvvxpswlrqv derxw wkhvh wkuhh
srvvlelolwlhv1

 Qr xvh1 Dv ehiruh/ wkh xwlolw| iurp qrw frqvxplqj dq| yduldqw ri d surgxfw
lv qrupdol}hg wr }hur1

 Ruljlqdov1 Hdfk ruljlqdo lv surgxfhg e| d vhsdudwh surgxfhu/ dw }hur

pdujlqdo frvw1 Doo ruljlqdov duh dvvxphg wr eh +l, ri wkh vdph txdolw|
+lqgh{hg e| vJ A 3, dqg +ll, shuihfwo| +krul}rqwdoo|, glhuhqwldwhg1 Khqfh/
li frqvxphu  ex|v d xqlw ri hdfk surgxfw lq wkh vxevhw P  J/ khu xwlolw|
S
lv jlyhq e| pvJ  M s / zkhuh p @ mPm dqg s lv wkh sulfh fkdujhg
iru surgxfw l1

 Frslhv1 Dv iru ruljlqdov/ doo frslhv duh dvvxphg wr eh +l, ri wkh vdph
txdolw| +lqgh{hg e| 3 ? vS ? vJ , dqg +ll, shuihfwo| +krul}rqwdoo|, glhuhq0
wldwhg1 Uhjduglqj wkhlu frvw/ zh frqvlghu/ lq wkh vslulw ri Mrkqvrq +4<;8,/
wzr h{wuhph vfhqdulrv= wkh frs|lqj whfkqrorj| lqyroyhv hlwkhu d frqvwdqw
xqlw frvw +f A 3, dqg qr {hg frvw +yduldeoh frs|lqj frvw prgho,/ ru
d {hg frvw +F A 3, dqg qr pdujlqdo frvw +{hg frs|lqj frvw prgho,1
Vxssrvlqj wkdw frqvxphu  frslhv d xqlw ri hdfk surgxfw lq wkh vxevhw
P  J/ khu xwlolw| lv jlyhq e| p +vS  f, lq wkh yduldeoh frs|lqj frvw
prgho/ dqg e| pvS  F lq wkh {hg frs|lqj frvw prgho1:

Lw lv lpsruwdqw wr qrwh wkdw/ lq rughu wr irfxv rq wkh hhfwv ri frs|lqj/ zh

dvvxph wkdw frs|lqj lv wkh rqo| srwhqwldo vrxufh ri lqwhughshqghqfh ehwzhhq wkh
ghpdqgv iru wkh ydulrxv lqirupdwlrq jrrgv= dv mxvw phqwlrqhg/ wkh jrrgv duh
frpsohwho| glhuhqwldwhg> pruhryhu/ zh kdyh lpsolflwo| dvvxphg wkdw frqvxphuv
kdyh d vx!flhqw +h{rjhqrxv, exgjhw wr ex| doo lqirupdwlrq jrrgv li wkh| vr zlvk1
Zh h{dplqh wkh yduldeoh0 dqg {hg0frs|lqj frvw prghov lq wxuq1 Dv zloo
ehfrph dssduhqw/ wkh wzr prghov ohdg wr yhu| glhuhqw uhvxowv1 Lq wkh iruphu
prgho/ wkh ghpdqgv iru dq| sduwlfxodu ruljlqdo duh frpsohwho| lqghshqghqw iurp
rqh dqrwkhu> zh fdq wkhuhiruh uhsolfdwh wkh dqdo|vlv ri wkh vlqjoh0jrrg prgho1
Rq wkh rwkhu kdqg/ dv qrwhg e| Mrkqvrq +4<;8,/ wkh {hg frvw ri wkh frs|lqj
whfkqrorj| lqwurgxfhv vrph lqwhughshqghqfh ehwzhhq wkh ghpdqgv iru ruljlqdov=
frqvxphuv zloo lqghhg edvh wkhlu ghflvlrq wr lqyhvw lq wkh frs|lqj whfkqrorj|
rq wkh frvw ri wklv whfkqrorj| dqg rq wkh sulfhv ri doo ruljlqdov1
:
D pruh jhqhudo irupxodwlrq iru wkh frvw ri frs|lqj zrxog eh= SE% '  nS% +zlwk c S : f,1
Lw zloo ehfrph dssduhqw ehorz wkdw wkh prgho txlfno| ehfrphv kdugo| wudfwdeoh xqghu wklv
jhqhudo frvw ixqfwlrq1

44
6 Pxowlsoh jrrgv dqg yduldeoh frs|lqj frvwv
Zh uvw dqdo|}h wkh sulflqj jdph ehwzhhq dq duelwudu| qxpehu ri surgxfhuv1
Dv zloo eh vkrzq/ zlwk shuihfwo| glhuhqwldwhg lqirupdwlrq jrrgv dqg yduldeoh
frs|lqj frvwv/ wkh dqdo|vlv uhpdlqv yhu| vlpsoh1 Wkdw doorzv xv wr dqdo|}h wkh
hqwu| jdph e| lqfrusrudwlqj d {hg fuhdwlrq frvw1 Frqvlghulqj wkh htxlole0
ulxp ri wklv wzr0vwdjh jdph/ zh fdofxodwh wkh +orqj uxq, zhoiduh lpsolfdwlrqv ri
frs|lqj1

614 Sulflqj jdph

Zkhq wkh frs|lqj whfkqrorj| lqyroyhv d frqvwdqw xqlw frvw shu frs|/ lw lv hdvlo|
vhhq wkdw wkh surgxfhuv ri ruljlqdov dfw lqghshqghqwo| ri rqh dqrwkhu/ lq df0
frugdqfh zlwk wkh rswlpdo ehkdylru ghulyhg lq wkh vlqjoh0jrrg prgho1 Wr vhh
wklv pruh fohduo|/ ohw xv ghqh wkh frqglwlrq iru d w|slfdo frqvxphu wr ex| dq
ruljlqdo ri jrrg l=

frqvxphu  ex|v jrrg l 5 J +,

S
vJ  s .  ' pd{ivJ  s > vS  f> 3j 
S
pd{ivS  f> 3j .  ' pd{ivJ  s > vS  f> 3j=

Lq zrugv/ wkh frqglwlrq vd|v wkdw frqvxphu  pxvw eh ehwwhu r sxufkdvlqj

jrrg l +dqg fkrrvlqj zklfkhyhu xvh lv wkh prvw surwdeoh iru wkh rwkhu jrrgv,
wkdq frs|lqj ru qrw xvlqj jrrg l +dqg vwloo fkrrvlqj zklfkhyhu xvh lv wkh prvw
surwdeoh iru wkh rwkhu jrrgv,1 Ehfdxvh ruljlqdov duh shuihfwo| glhuhqwldwhg
dqg ehfdxvh hdfk frs| ri dq dgglwlrqdo jrrg frvwv wkh vdph frqvwdqw dprxqw/
wkh zklfkhyhu xvh lv wkh prvw surwdeoh iru wkh rwkhu jrrgv grhv qrw ghshqg
rq zklfk xvh lv pdgh ri jrrg l1 Wkhuhiruh/ wkh deryh frqglwlrq erlov grzq wr
vJ  s  pd{ivS  f> 3j/ zklfk jhqhudwhv wkh vdph ghpdqg vfkhgxoh dv lq
wkh vlqjoh0jrrg prgho/ dv jlyhq e| h{suhvvlrq +5,1 Lw iroorzv wkdw/ ehfdxvh doo
surgxfhuv vhw wkh vdph sulfh/ xvhuv ghflgh hlwkhu wr ex| doo lqirupdwlrq jrrgv
ru wr frs| wkhp doo +ru qrw wr xvh dq|,1 Wr hdvh wkh h{srvlwlrq +dqg zlwkrxw
orvv ri jhqhudolw|,/ zh vhw vJ @ 4 iru wkh uhvw ri wklv vhfwlrq1

615 Hqwu| jdph

Qrz/ ohw I ghqrwh wkh {hg fuhdwlrq frvw idfhg e| surgxfhu l1 Zh dvvxph
wkdw wkh frvw ri fuhdwlrq glhuv dprqj surgxfhuv +vrph surgxfhuv duh pruh
h!flhqw dw fuhdwlqj htxlydohqw zrunv wkdq rwkhuv,1 Vshflfdoo|/ zh dvvxph wkdw
I lv gudzq iurp vrph fxpxodwlyh glvwulexwlrq ixqfwlrq K+I ,1 Wklv ixqfwlrq lv
dvvxphg wr eh vprrwk dqg lqfuhdvlqj rq wkh lqwhuydo ^!> ! . 4`/ zlwk 3 ? ! ?
 K @ e ? ! . 4/ K +!, @ 3 dqg K +! . 4, @ 4= Iru jlyhq jurvv surwv / rqo|
wkh surgxfhuv zlwk I   zloo fuhdwh wkhlu lqirupdwlrq jrrg1 Khqfh/ wkh wrwdo

45
qxpehu ri zrunv fuhdwhg/ q+,/ lv hqgrjhqrxvo| ghwhuplqhg dv
+
K+, li   !>
q+, @
3 rwkhuzlvh1

Fohduo|/ q+, lv dq lqfuhdvlqj ixqfwlrq ri = Wkhuhiruh/ zh qrz kdyh d ehwwhu

slfwxuh ri wkh vrfldo wudgh0r wkdw frs|lqj lqgxfhv= rq wkh rqh kdqg/ frs|lqj
lqfuhdvhv vrfldo zhoiduh shu zrun +dv ghprqvwudwhg e| +8, deryh, exw/ rq wkh
rwkhu kdqg/ frs|lqj uhgxfhv surwv shu zrun dqg/ wkhuhe|/ wkh qxpehu ri zrunv
fuhdwhg1

616 Zhoiduh hhfwv ri frs|lqj lq wkh orqj0uxq

Zh qrz lqyhvwljdwh krz wkhvh wzr hhfwv edodqfh zkhq frs|lqj lv hlwkhu gh0
whuuhg ru dffrpprgdwhg1 Joredo zhoiduh +qrwhg , lv qrz ghqhg dv zho0
iduh shu zrun +l1h1/ surgxfhu*v qhw surw soxv frqvxphu vxusoxv, pxowlsolhg e|
wkh qxpehu ri zrunv fuhdwhg +li dq|,1 Wr hdvh wkh frpsxwdwlrqv/ zh pdnh
wkh vlpsoli|lqj dvvxpswlrqv wkdw wkh {hg frvw ri fuhdwlrq lv glvwulexwhg xql0
irupo| dqg wkdw wkhuh lv d xqlw pdvv ri srwhqwldo surgxfhuv1 Zh kdyh wkxv wkdw
q+, @ pd{ i  !> 3j = Joredo zhoiduh lv wkhq frpsxwhg dv +zlwk n @ e> g> d,=
] Z& 
& @ pd{ +V& .  &  I ,gI> 3

 
4
@ pd{ + &  !, +5V& .  &  !, > 3 =
5

Frs|lqj lv ghwhuuhg1 Lq wkh uhjlrq ri sdudphwhuv zkhuh frs|lqj lv ghwhuuhg/

zh qg wkdw wkh glhuhqfh _  K lv htxlydohqw lq vljq wr 7f2  5vS +6  5!, .
v2S +4 . 5!,1 Vroylqj wklv sro|qrpldo iru f/ zh qg wzr srvlwlyh urrwv iru doo
dgplvvleoh ydoxhv ri vS dqg !/ wkh odujh urrw ehlqj odujhu wkdq vS @5 +deryh
zklfk frs|lqj lv eorfndghg,1 Zh fdq wkhuhiruh frqfoxgh wkdw frs|lqj ghwhuuhqfh
lpsuryhv joredo zhoiduh zkhq f lv odujhu wkdq vrph wkuhvkrog/ f_ +vS > !,/ zklfk
lqfuhdvhv zlwk vS dqg !1;

Frs|lqj lv dffrpprgdwhg1 D vlplodu frqfoxvlrq lv gudzq lq wkh uhjlrq

ri sdudphwhuv zkhuh frs|lqj lv dffrpprgdwhg1 D ihz olqhv ri frpsxwdwlrqv
hvwdeolvk wkdw lw lv rqo| zkhq wkh uhodwlyh txdolw| ri frslhv lv orz hqrxjk wkdw
frs|lqj lpsuryhv joredo zhoiduh1 Pruh suhflvho|/ iru kdylqj @ A K / f pxvw
eh odujhu wkdq vrph wkuhvkrog ydoxh/ f@ +vS > !,/ zklfk lqfuhdvhv zlwk vS dqg
!1 Pruhryhu/ li vS lv odujhu wkdq vrph orzhu erxqg +zklfk ghfuhdvhv zlwk !,/
f@ +vS > !, lv odujhu wkdq wkh erxqgdu| vS +4  vS , @ +5  vS , dqg/ wkhuhiruh/ fdqqrw
eh uhdfkhg1<
 s 
;
Irupdoo|/ l_ : lK li dqg rqo| li S : S_ ErS c  ErS *e  3 2 3 D 3 2f n e2 
 
<
Irupdoo|/ S@ ErS c  vroyhv E2 3 rS  Se n e E 3 rS 2 S n 2  3 rS n r2S 3 Ee 3 rS  
2 2 2 2
E 3 rS  S n erS E 3 rS  ErS n  S 3 rS E 3 rS  ErS n 2 ' f1

46
 Wkh suhylrxv uhvxowv duh orrvho| uhfrughg lq wkh qh{w sursrvlwlrq1

Sursrvlwlrq 6 Zkhq frs|lqj lqyroyhv d frqvwdqw xqlw frvw dqg qr {hg frvw/
frs|lqj +eh lw dffrpprgdwhg ru ghwhuuhg, gdpdjhv zhoiduh lq wkh orqj uxq/ xq0
ohvv frslhv duh d srru dowhuqdwlyh wr ruljlqdov dqg2ru duh h{shqvlyh wr dftxluh1

Wkh lqwxlwlrq ehklqg Sursrvlwlrq 6 jrhv dv iroorzv1 Zkhq frslhv duh d srru
dowhuqdwlyh wr ruljlqdov dqg2ru duh h{shqvlyh wr dftxluh/ +dfwxdo ru wkuhdwhqlqj,
frs|lqj hurghv rqo| voljkwo| wkh prqrsro| srzhu ri wkh surgxfhuv1 Khqfh/
wkhuh lv rqo| d vpdoo uhgxfwlrq lq wkh qxpehu ri zrunv fuhdwhg/ zklfk lv pruh
wkdq frpshqvdwhg e| wkh lqfuhdvh lq wkh frqvxphu vxusoxv shu zrun1 \hw/ wkh
rssrvlwh suhydlov dv vrrq dv frslhv ehfrph pruh dwwudfwlyh1 Iljxuh 5 looxvwudwhv
wkhvh uhvxowv1 Lq duhdv G / G2 dqg G / surgxfhuv olplw0sulfh wr ghwhu frs|lqj1
Frs|lqj ghwhuuhqfh lpsuryhv joredo zhoiduh lq duhd G / exw ghwhulrudwhv lw lq
duhdv G2 dqg G +zruvh/ lq duhd G / wkh vxsso| ri fuhdwlyh zrunv lv }hur zkhq
frs|lqj kdv wr eh ghwhuuhg,1 Lq duhdv D / D2 dqg D / surgxfhuv dffrpprgdwh
frs|lqj1 Vlploduo|/ frs|lqj dffrpprgdwlrq lpsuryhv zhoiduh lq duhd D / exw
ghwhulrudwhv lw lq duhdv D2 dqg D +zlwk qr zrun fuhdwhg lq duhd D ,1 Iljxuh 5
lv gudzq iru ! @ 3=38> li zh lqfuhdvh !/ wkh fxuyhv vhsdudwlqj duhdv D dqg G
vkliw xs/ zklfk uhgxfhv wkh uhjlrq ri sdudphwhuv zkhuh frs|lqj kdv d srvlwlyh
orqj0uxq hhfw rq zhoiduh1

^Lqvhuw Iljxuh 5 derxw khuh`

7 Pxowlsoh jrrgv dqg {hg frs|lqj frvw

Zkhq frs|lqj lqyroyhv d {hg frvw udwkhu wkdq yduldeoh frvwv/ wkh ghpdqgv iru
ruljlqdov ehfrph lqwhughshqghqw vlqfh frqvxphuv edvh wkhlu ghflvlrq wr lqyhvw
lq wkh frs|lqj whfkqrorj| rq wkh frvw ri wklv whfkqrorj| dqg rq wkh sulfhv ri
doo ruljlqdov1 Wr vhh wkh glhuhqfh zlwk wkh suhylrxv fdvh/ uhfdoo wkh frqglwlrq
iru frqvxphu  wr sxufkdvh dq ruljlqdo ri jrrg l1 Wkh frqglwlrq lv vwloo wkdw
frqvxphu  pxvw eh ehwwhu r sxufkdvlqj jrrg l +dqg fkrrvlqj zklfkhyhu xvh lv
wkh prvw surwdeoh iru wkh rwkhu jrrgv, wkdq frs|lqj ru qrw xvlqj jrrg l +dqg
vwloo fkrrvlqj zklfkhyhu xvh lv wkh prvw surwdeoh iru wkh rwkhu jrrgv,1 Zkdw
fkdqjhv lv wkdw wkh prvw surwdeoh xvhv iru doo rwkhu jrrgv grhv qrz ghshqg
rq zkhwkhu wkh frqvxphu frslhv jrrg l ru qrw= li vkh grhv/ wkhq wkh frvw ri
frs|lqj dq| qxpehu ri rwkhu jrrgv lv }hur lqvwhdg ri F1

714 Xvhu ehkdylru

Zkdw lv wkh xwlolw| frqvxphu  fdq rewdlq ghshqglqj rq khu xvh ri jrrg lB
Vxssrvh wkdw q  5 jrrgv duh dydlodeoh dqg ohw s ghqrwh wkh sulfh ri jrrg l1
Vlqfh zh zloo eh orrnlqj iru v|pphwulf Ehuwudqg0Qdvk htxloleuld/ zh dvvxph

47
wkdw doo rwkhu jrrgv duh sulfhg wkh vdph= s @ s ;m 9@ l1 Wr uhvwulfw voljkwo| wkh
qxpehu ri fdvhv wr frqvlghu/ zh pdnh wkh iroorzlqj dvvxpswlrqv=

vS ? F ? qvS > +9,

qvS A vJ = +:,

Dvvxpswlrq +9, vlpso| vd|v wkdw qr frqvxphu zloo lqyhvw lq wkh frs|lqj whfkqro0
rj| li lw lv wr frs| rqo| rqh ruljlqdo +vS  F ? 3 ;,/ exw wkdw vrph frqvxphuv
pljkw lqyhvw li lw lv wr frs| doo q ruljlqdov +< v1w1 qvS  F A 3,1 Dffruglqj wr
dvvxpswlrq +:,/ wkh txdolw| glhuhqwldo ehwzhhq ruljlqdov dqg frslhv lv qrw wrr
odujh +lq sduwlfxodu/ q frslhv duh zruwk dw ohdvw rqh ruljlqdo,1
Zh fdq qrz ghwhuplqh wkh prvw surwdeoh xvh iru wkh rwkhu jrrgv ghshqg0
lqj rq wkh xvh pdgh ri jrrg l= Li wkh frqvxphu hlwkhu sxufkdvhv ru grhv qrw xvh
jrrg l/ lw lv hdvlo| vhhq wkdw wkh frqvxphu zloo wuhdw doo wkh rwkhu jrrgv dolnh=
vkh zloo hlwkhu ex|/ frs| ru qrw xvh wkhp doo/ ohdylqj khu uhvshfwlyho| zlwk dq dg0
glwlrqdo xwlolw| ri +q  4, +vJ  s, > +q  4, vS  F ru 3143 Rq wkh rwkhu kdqg/
li vkh frslhv jrrg l/ qrw xvlqj wkh rwkhu jrrgv fohduo| ehfrphv d grplqdwhg
rswlrq +ehfdxvh wkh frs|lqj whfkqrorj| kdv ehhq sxufkdvhg,1 Khqfh/ wkh frq0
vxphu zloo hlwkhu sxufkdvh ru frs| doo rwkhu jrrgv/ ohdylqj khu uhvshfwlyho| zlwk
dq dgglwlrqdo xwlolw| ri +q  4, +vJ  s, ru +q  4, vS 1 Sxwwlqj wkhvh qglqjv
wrjhwkhu/ zh vxppdul}h wkh xvhu*v ehkdylru lq wkh iroorzlqj ohppd1
 
Ohppd 4 Idflqj d sulfh yhfwru s > +s @ s, ' dqg d frs|lqj whfkqrorj|
ghvfulehg e| +9,/ d frqvxphu ri w|sh  sxufkdvhv ruljlqdo l li dqg rqo| li

vJ  s . pd{i+q  4, +vJ  s, > +q  4, vS  F> 3j

+;,
 pd{i+q  4, +vJ  s, > qvS  F> 3j=

Wkh qh{w orjlfdo vwhsv zrxog eh/ uvw/ wr xvh frqglwlrq +;, wr ghulyh wkh
ghpdqg iru ruljlqdo l/ dqg qh{w wr xvh wkh ghpdqg ixqfwlrq wr pd{lpl}h up
l*v surw dqg/ wkhuhe|/ ghulyh up l*v uhdfwlrq ixqfwlrq1 Wkrxjk ihdvleoh/ wklv
wdvn wxuqv rxw wr eh h{wuhpho| fxpehuvrph1 +Zh jlyh dq lghd ri wkh lqwulfdflhv
lqyroyhg lq Dsshqgl{ 9141, Zh wkxv uhqrxqfh wr wu| dqg jlyh d frpsohwh fkdudf0
whul}dwlrq ri v|pphwulf Ehuwudqg0Qdvk htxloleuld lq wkh prgho zlwk {hg frs|0
lqj frvwv1 Lqvwhdg/ zh surylgh frqglwlrqv xqghu zklfk vrph vshflf htxloleuld
pljkw +ru pljkw qrw, rffxu1 Wkh sulfh yhfwruv zh lqyhvwljdwh fruuhvsrqg wr wkh
wkuhh sdwwhuqv h{dplqhg lq wkh prgho zlwk yduldeoh frs|lqj frvwv= eorfndghg/
ghwhuuhg dqg dffrpprgdwhg frs|lqj1 Dw wkh hqg ri wkh vhfwlrq/ zh hpskdvl}h
43
Wr vhh wklv/ ohw % +uhvs1 +, ghqrwh wkh qxpehu ri jrrgv  '  sxufkdvhg +uhvs1 frslhg,/
zlwk f $ %c + $ ? 3 1 Li % D f/ wkhq dq| vlwxdwlrq zlwk f + ? 3  3 % lv grplqdwhg1
Lqghhg/ + : f lpsolhv wkdw wkh frs|lqj whfkqrorj| kdv ehhq sxufkdvhg/ phdqlqj wkdw frs|lqj
dq dgglwlrqdo jrrg pdnhv wkh frqvxphu vwulfwo| ehwwhu r wkdq qrw xvlqj wklv jrrg1 Qrz/
ehfdxvh wkh xwlolw| iurp d sxufkdvhg ru d frslhg jrrg lv frqvwdqw/ dq| vlwxdwlrq zlwk % : f
dqg + ' ? 3  3 % : f lv dovr grplqdwhg1 Zh duh wkxv ohiw zlwk wkuhh srvvlelolwlhv= +l,
% ' ? 3 c + ' f/ +ll, % ' fc + ' ? 3 / dqg +lll, % ' + ' f1

48
wkh hhfwv ri vwudwhjlf lqwhudfwlrq e| frpsdulqj wkh v|pphwulf Ehuwudqg0Qdvk
htxloleuld zlwk wkh rxwfrphv wkdw zrxog eh revhuyhg xqghu frooxvlrq +ru li zh
zhuh lq wkh suhvhqfh ri d pxowlsurgxfw prqrsrolvw,1

715 Eorfndghg frs|lqj

Dv ehiruh/ frs|lqj lv eorfndghg li pdunhw frqglwlrqv duh vxfk wkdw frs|lqj
h{huwv qr wkuhdw rq surgxfhuv ri ruljlqdov hyhq zkhq hdfk ri wkhp ehkdyhv dv
dq xqfrqvwudlqhg prqrsrolvw1 Ehfdxvh/ zkhq wkhuh lv qr wkuhdw ri frs|lqj/
wkh ghpdqgv iru wkh q ruljlqdov duh frpsohwho| lqghshqghqw ri rqh dqrwkhu/
hdfk surgxfhu fkrrvhv s vr dv wr pd{lpl}h   @ s +4  s @vJ , = Wkdw lv/ hdfk
up fkdujhv sK @ vJ @5= Wkh qh{w sursrvlwlrq vwdwhv xqghu zklfk frqglwlrq wklv
ehkdylru frqvwlwxwhv d Qdvk htxloleulxp1

Sursrvlwlrq 7 +Eorfndghg frs|lqj, Hdfk up fkdujlqj wkh prqrsro| sulfh/

sK @ vJ @5> lv d Qdvk htxloleulxp ri wkh jdph zlwk {hg frs|lqj frvwv li dqg
rqo| li F  +q@5, vS 1

Surri1 Vhh Dsshqgl{ 9151

Wkh phvvdjh ri Sursrvlwlrq 7 lv fohdu= li wkh prvw hdjhu frqvxphu qhhgv
wr frs| pruh wkdq kdoi ri wkh dydlodeoh ruljlqdov wr uhfrxs wkh {hg frvw ri wkh
frs|lqj whfkqrorj|/ wkhq frs|lqj h{huwv qr wkuhdw rq wkh surgxfhuv ri ruljlqdov/
zkr fdq vdiho| fkdujh wkh prqrsro| sulfh1
Ohw xv qrz wxuq wr wkh vlwxdwlrqv zkhuh frs|lqj fdqqrw eh eorfndghg> wkdw
lv/ zh dvvxph wkdw F ? +q@5,vS 1 Lq wkhvh vlwxdwlrqv/ frs|lqj ehfrphv dq dfwxdo
wkuhdw dqg surgxfhuv ri ruljlqdov kdyh wr ghflgh zkhwkhu lw lv pruh surwdeoh iru
wkhp wr ghwhu ru wr dffrpprgdwh frs|lqj1 Dv douhdg| vwuhvvhg/ wkh lqfuhdvlqj
uhwxuqv wr vfdoh lq wkh frs|lqj whfkqrorj| wudqvirup wkh fkrlfh ehwzhhq frs|lqj
ghwhuuhqfh ru dffrpprgdwlrq lqwr d sureohp ri lqwhughshqghqw ghflvlrq pdnlqj1

716 Ghwhuuhg frs|lqj

Wr ghwhu frs|lqj ri lwv surgxfw/ up l pxvw qg wkh colplw sulfh*/ s / xqghu
zklfk doo frqvxphuv qg wkh ruljlqdo surgxfw uhodwlyho| pruh dwwudfwlyh wkdq
wkh frs|1 Lq wkh vlpsoh prgho ri Vhfwlrqv 5 dqg 6/ up l frxog vroyh wklv sureohp
lq wrwdo lqghshqghqfh= iru frqvxphuv wr suhihu frs|lqj wr erwk sxufkdvlqj dqg
qrw xvlqj/ lw kdg wr eh wkh fdvh +uhvshfwlyho|, wkdw  ? +s  f, @ +vJ  vS , dqg
  f@vS > fohduo|/ dq| sulfh ehorz s @ fvJ @vS pdgh wkh mrlqw vdwlvidfwlrq ri wkh
wzr frqglwlrqv lpsrvvleoh dqg/ wkhuhe|/ ghwhuuhg frs|lqj1
Qrz/ zkhq frs|lqj lqyroyhv d {hg frvw/ up l*v olplw sulfh zloo fohduo|
ghshqg rq wkh sulfhv vhw e| wkh rwkhu upv1 Lqwxlwlyho|/ frs|lqj vkrxog eh
kdughu wr ghwhu +lq wkh vhqvh wkdw up l zloo kdyh wr ghfuhdvh lwv sulfh ixuwkhu,
wkh kljkhu wkh sulfh vhw e| wkh rwkhu upv/ dqg frqyhuvho|1 Lqghhg/ li wkh rwkhu
upv vhw d uhodwlyho| kljk sulfh/ frqvxphuv zloo kdyh pruh lqfhqwlyh wr lqyhvw

49
lq wkh frs|lqj whfkqrorj| dqg/ ehfdxvh ri lqfuhdvlqj uhwxuqv wr vfdoh/ wkh| zloo
whqg wr frs| surgxfw l dorqj zlwk wkh rwkhu surgxfwv/ xqohvv wkh sulfh ri l lv
frqvlghudeo| orzhu1
Wr irupdol}h wkh lqwxlwlrq/ zh uvw ghwhuplqh up l*v olplw sulfh vxssrvlqj
wkdw doo rwkhu upv fkdujh wkh vdph duelwudu| sulfh s1 Wkdw lv/ zh fkdudf0
whul}h wkh ixqfwlrq s +s,1 Zh wkhq orrn iru d {hg srlqw ri wklv ixqfwlrq/ s/
dqg ghwhuplqh xqghu zklfk frqglwlrqv doo upv fkdujlqj s lv d Ehuwudqg0Qdvk
htxloleulxp/ lq zklfk frs|lqj lv +froohfwlyho|, ghwhuuhg1

71614 Lqglylgxdo olplw sulflqj

Vxssrvh s @ s ;m 9@ l1 Zh zdqw wr ghwhuplqh wkh olplw sulfh s +s, xqghu
zklfk qr frqvxphu qgv lw surwdeoh wr frs| surgxfw l1 Qrwh wkdw up l lv
frqfhuqhg rqo| e| ghwhuulqj wkh frs|lqj ri lwv rzq surgxfw1 \hw/ dv zh zloo vhh/
lwv ehkdylru zloo ghshqg rq zkhwkhu frqvxphuv frs| ru qrw wkh rwkhu surgxfwv1
Xvlqj wkh dqdo|vlv ri wkh xvhu ehkdylru +vxppdul}hg lq Ohppd 4,/ ohw xv
ghqh wkh xwlolw| iru xvhu  ri/ uhvshfwlyho|/ ex|lqj ru frs|lqj surgxfw l=

X +> s > s, @ vJ  s . pd{i+q  4, +vJ  s, > +q  4, vS  F> 3j

 ~} €


X +> s > s, @ vS  F . pd{i+q  4, +vJ  s, > +q  4, vS j

 ~} €


E| frpsdulqj wkh h{dfw ydoxhv ri P E dqg PF/ zh fdq h{suhvv wkh suhflvh
irup ri wkh frqglwlrq X +> s > s,  X +> s > s, iru doo frqjxudwlrqv ri sulfhv
dqg sdudphwhuv1 Wkh qh{w vwhs frqvlvwv lq ghulylqj iru zklfk ydoxhv ri s wkh
frqglwlrq lv dozd|v phw lq wkh fruuhvsrqglqj uhjlrq ri sdudphwhuv1 Vwudljkw0
iruzdug frpsxwdwlrqv hvwdeolvk wkh uhvxowv ri wklv wzr0vwhs surfhgxuh1 Wdeoh
4 vxppdul}hv wkh uhvxowv iru wkh fdvh zkhuh wkh rwkhu surgxfwv duh uhodwlyho|
h{shqvlyhsuhflvho|/ zkhq s A vJ F@ ^+q  4, vS `1 Wdeoh 5 suhvhqwv wkh uhvxowv iru
wkh rwkhu fdvh1 Ilqdoo|/ froohfwlqj doo wkhvh uhvxowv/ zh vwdwh up l*v olplw sulflqj
ehkdylru lq Ohppd 51

Xvhuv X +,  X +, li Dozd|v phw li

3 
  ?r 3 R 3rS 
s  EEr?J3
E?3rS S 3rf rS
E?3R3 ErJ 3rS 
E?3rS     s 
 R
E?3ErJ 3rS  rJ rS3 E?3rS
E?3R3 R nE? 3R3
E?3ErJ 3rS   rJ
R
3rS  ?ErJ 3rS  s  s  ?
3
R
4  R  3 s  s . F
rJ 3 rS rJ 3rS
Wdeoh 4= Olplw sulflqj zkhq rwkhu surgxfwv duh uhodwlyho| h{shqvlyh

4:
 Xvhuv X +,  X +, li Dozd|v phw li
 3R
3    rRf   ?r S 3 rf
s  F  ?rSr3f
rJ
s
?3R3 ?rS 3rJ
R
rf
   rJ 3
R
rS
  R nE
?ErJ 3rS 
s  F  rf s
R
   4 3
  rRJ3 s  s . F
rJ 3 rS rS

Wdeoh 5= Olplw sulflqj zkhq rwkhu surgxfwv duh uhodwlyho| fkhds

Ohppd 5 Wr ghwhu frs|lqj ri lwv surgxfw/ up l qhhgv wr vhw lwv sulfh dv
iroorzv=
+ 3rS 
s  s +s, @ EEr?J3 rS li s A E?r3J

rS
>
?rS 3rJ
s  s +s, @ F  rf s li s  E?3rS =rJ 

Surri1 Wkh surri iroorzv gluhfwo| iurp wkh uhvxowv vxppdul}hg lq Wdeohv 4
dqg 51 Lw lv uhdglo| fkhfnhg wkdw wkh uvw +uhvs1 vhfrqg, frqglwlrq lq wkh ohppd
lv wkh prvw vwulqjhqw dprqj wkh frqglwlrqv h{suhvvhg lq Wdeoh 4 +uhvs1 lq Wdeoh
5,1
Ohppd 5 frqupv rxu lqwxlwlrq1 Zkhq wkh rwkhu surgxfwv duh uhodwlyho|
h{shqvlyh +s A vJ F@ ^+q  4, vS `,/ up l pxvw sulfh pxfk orzhu wkdq wkh rwkhu
upv +s +s, @ +vJ  vS , F@ ^+q  4, vS ` ? s, lq rughu wr glvfrxudjh frs|lqj ri
lwv surgxfw1 Rq wkh rwkhu kdqg/ dv wkh rwkhu surgxfwv ehfrph fkhdshu/ wkh
frqvwudlqw rq l*v sulfh uhod{hv= iru s  vJ F@ ^+q  4, vS `/ s +s, ghfuhdvhv zlwk s>
dqg hyhqwxdoo| ehfrphv orzhu wkdq s1

71615 V|pphwulf olplw sulflqj

Wkh suhylrxv qglqjv looxvwudwh krz upv whqg wr iuhh0ulgh rq hdfk rwkhu zkhq
lw frphv wr ghwhuulqj frs|lqj144 Wkh rqo| vlwxdwlrq iru zklfk qr iuhh0ulglqj lv
revhuyhg lv zkhq doo upv fkdujh wkh v|pphwulf olplw sulfh ghqhg e| s +s, @ s/
l1h1/
FvJ
s @ s_  =
qvS
Wklv v|pphwulf olplw sulfh dsshduv dv d olnho| fdqglgdwh iru dq htxloleulxp zlwk
ghwhuuhg frs|lqj1 Lq wkh qh{w sursrvlwlrq/ zh vwdwh wkh frqglwlrqv xqghu zklfk
wklv frqmhfwxuh suryhv uljkw1 Zh uvw ghqh wkh iroorzlqj wkuhvkrog=
q2 vS +vJ  vS ,
F_  = +<,
+q . 4, vJ  qvS
Qrwh wkdw F_ ? +q@5, vS +, qvS A +q  4, vJ 1
44
Vhyhudo dxwkruv kdyh vwxglhg hqwu| ghwhuuhqfh zlwk vhyhudo lqfxpehqwv dqg lqyhvwljdwh
zkhwkhu hqwu| ghwhuuhqfh lv d sxeolf jrrg1 Wkh uhvxowv wkh| uhdfk duh dpeljxrxv1 Dv Dssoh0
edxp dqg Zhehu +4<<5, vxppdul}h/ suhfrpplwphqwv e| dq lqfxpehqw lpsrvh erwk gluhfw
dqg lqgluhfw h{whuqdolwlhv rq rwkhu lqfxpehqwv1 Wklv h{sodlqv zk| lw lv jhqhudoo| lpsrvvleoh wr
ghwhuplqh zkhwkhu clqyhvwphqw lq ghwhuuhqfh* lv wrr kljk/ ru wrr orz uhodwlyh wr wkh frooxvlyh
vroxwlrq1

4;
Sursrvlwlrq 8 +Ghwhuuhg frs|lqj, Hdfk up fkdujlqj wkh v|pphwulf olplw
sulfh/ s_ @ +FvJ , @ +qvS ,/ lv d Qdvk htxloleulxp ri wkh jdph zlwk {hg frs|0
lqj frvwv li dqg rqo| li qvS A +q  4, vJ dqg F_  F  +q@5, vS 1

Surri1 Vhh Dsshqgl{ 9161

Wkh lqwxlwlrq ehklqg Sursrvlwlrq 8 jrhv dv iroorzv1 Vxssrvh wkh rwkhu upv
fkdujh wkh v|pphwulf olplw sulfh dqg frqvlghu wkh zrxog0eh sludwhv +l1h1/ wkrvh
xvhuv iru zkrp qvS F A 3,1 Zh zdqw wr ghwhuplqh krz wkrvh xvhuv pd{lpl}h
wkhlu xwlolw| zkhq wkh| gr qrw sxufkdvh surgxfw l= Dfwxdoo|/ wkhlu ehkdylru
ghshqgv rq wkh uhodwlyh txdolw| ri frslhv1 Zkhq wkh txdolw| ri frslhv lv uhodwlyho|
orz +qvS  +q  4, vJ ,/ wkh zrxog0eh sludwhv suhihu qrw xvlqj l dqg sxufkdvlqj
doo rwkhu surgxfwv/ udwkhu wkdq frs|lqj doo q surgxfwv1 Khqfh/ wkhuh lv qr wkuhdw
ri frs|lqj iru surgxfw l dqg up l vhhv qr uhdvrq wr olplw lwv sulfh1 Rq wkh
rwkhu kdqg/ zkhq wkh txdolw| ri frslhv lv uhodwlyho| kljk +qvS A +q  4, vJ ,/ wkh
zrxog0eh sludwhv ehfrph dfwxdo sludwhv li wkh| ghflgh qrw wr sxufkdvh surgxfw
l1 Wr ghwhu wkhp wr gr vr/ up l pxvw wkhuhiruh vhw d orz hqrxjk sulfh1 Krz
orz wklv sulfh vkrxog eh ghshqgv rq wkh {hg frs|lqj frvw1 Li wklv frvw lv
kljk +F A +q@5, vS ,/ up l fdq iuhh0ulgh rq wkh rwkhu upv* hruw dqg vhw wkh
prqrsro| sulfh1 Li wkh frs|lqj frvw lv orz +F ? F_ ,/ wkh rssrvlwh suhydlov= up
l pxvw vhw d olplw sulfh ehorz s_ 1 Ilqdoo|/ iru lqwhuphgldu| {hg0frs|lqj frvwv/
up l rswlpdoo| ghwhuv frs|lqj e| fkdujlqj wkh vdph sulfh dv wkh rwkhu upv1

71616 Zhoiduh hhfwv ri ghwhuuhg frs|lqj

Zkhq wkh frqglwlrqv ri Sursrvlwlrq 8 duh phw dqg q lqirupdwlrq jrrgv duh
surgxfhg/ hdfk surgxfhu pdnhv wkh iroorzlqj +jurvv, surw=
 
F FvJ vJ
 _ +q, @ 4  ?  K +q, @ >
qvS qvS 7
zkhuh  K +q, lv wkh +jurvv, surw wkdw hdfk surgxfhu frxog rewdlq li frs|lqj glg
qrw h{lvw +ru frxog eh eorfndghg,1 Lw lv hdvlo| fkhfnhg wkdw  _ +q, ghfuhdvhv zlwk
q/ phdqlqj wkdw ghwhuuhg frs|lqj +xqghu {hg frs|lqj frvwv, lv pruh kdupixo
wr surgxfhuv wkh odujhu wkh qxpehu ri lqirupdwlrq jrrgv surgxfhg1
Dw sulfh s_ @ +FvJ , @ +qvS ,/ +ohjlwlpdwh, xvhuv dfklhyh d vxusoxv ri
]   
FvJ vJ +qvS  F,2
V_ +q, @ q vJ  g @ 2
>

?r
qv S 5qvS
S

zklfk lv dovr htxdo wr wrwdo frqvxphu vxusoxv vlqfh doo rwkhu frqvxphuv suhihu
qrw xvlqj dq| lqirupdwlrq jrrg1 Lw lv vwudljkwiruzdug wr vkrz wkdw +l, V_ +q, A
VK +q, @ qvJ @;/ dqg +ll, V_ +q, lv dq lqfuhdvlqj ixqfwlrq ri q1
Dgglqj wrwdo surwv wr frqvxphu vxusoxv/ zh ghulyh rxu phdvxuh ri vrfldo
zhoiduh lq wkh vkruw uxq=
 
vJ q2 v2S  F 2
Z_ +q, @ q _ +q, . V_ +q, @ =
5qv2S

4<
Lw wxuqv rxw wkdw wkh ehqhwv ri frs|lqj iru wkh frqvxphuv h{fhhgv wkh orvvhv
iru wkh surgxfhuv1 Zh revhuyh lqghhg wkdw +l, Z_ +q, A ZK +q, @ 6qvJ @;/ dqg
+ll, Z_ +q, lv dq lqfuhdvlqj ixqfwlrq ri q1 Zh wkhuhiruh frqfoxgh wkdw/ dv lq
wkh yduldeoh frs|lqj frvw fdvh/ ghwhuuhg frs|lqj lpsuryhv vrfldo zhoiduh lq wkh
vkruw0uxq +zlwk uhvshfw wr d k|srwkhwlfdo hfrqrp| zkhuh frs|lqj zrxog eh
lqihdvleoh,1 Wkh glhuhqfh zlwk wkh yduldeoh frs|lqj frvw fdvh lv wkdw zhoiduh
lpsuryhv ixuwkhu dv wkh qxpehu ri lqirupdwlrq jrrgv surgxfhg lqfuhdvhv1
Ehfdxvh vkruw0uxq surwv ghfuhdvh zlwk wkh qxpehu ri surgxfhuv/ zh fdqqrw
ghulyh wkh orqj0uxq/ iuhh0hqwu|/ htxloleulxp dv hdvlo| dv lq wkh yduldeoh0frs|lqj
frvw prgho145 Krzhyhu/ zh fdq frqmhfwxuh wkdw +ghwhuuhg, frs|lqj lv olnho| wr
kdyh d pruh ghwulphqwdo hhfw rq orqj0uxq zhoiduh +ehfdxvh/ dv pruh jrrgv
jhw surgxfhg/ wkh pdujlqdo surgxfhu idfhv erwk kljkhu {hg fuhdwlrq frvwv dqg
orzhu jurvv surwv,1

717 Dffrpprgdwhg frs|lqj

Zh qrz orrn iru d v|pphwulf Ehuwudqg0Qdvk htxloleulxp lq zklfk surgxfhuv
qg lw rswlpdo wr wrohudwh frs|lqj1 Li doo ruljlqdov duh sulfhg wkh vdph/ xvhuv zloo
wuhdw doo jrrgv dolnh1 Wkdw lv/ wkh pdunhw zloo eh vhjphqwhg dv lq wkh yduldeoh0
frs|lqj frvw prgho= orz0 xvhuv zloo qrw xvh dq| jrrg/ lqwhuphgldwh0 xvhuv
zloo frs| doo jrrgv/ dqg kljk0 xvhuv zloo sxufkdvh doo jrrgv1 Zh qhhg qrz wr
ghwhuplqh zklfk frpprq sulfh zloo dfklhyh vxfk pdunhw vhjphqwdwlrq1
Vxssrvh wkdw +q  4, upv fkdujh d frpprq sulfh s dqg wkdw up l fkrrvhv
vrph sulfh s lq wkh ylflqlw| ri s1 Wr ghulyh wkh ghpdqg idflqj up l/ zh qhhg
wr lghqwli| wkh xvhu zkr lv lqglhuhqw ehwzhhq ex|lqj ru frs|lqj doo jrrgv1 Wklv
xvhu lv lghqwlhg e|  vxfk wkdw vJ  s . +q  4, +vJ  s, @ qvS  F> wkdw lv

 s . +q  4, s  F
@ =
q +vJ  vS ,

Ehfdxvh doo xvhuv zlwk d odujhu  wkhq  zloo ex| doo jrrgv/ wkh ghpdqg idflqj
up l +dv orqj dv s lv qrw wrr glhuhqw iurp s, lv jlyhq e|

s . +q  4, s  F
G +s > s, @ 4  = +43,
q +vJ  vS ,

Pd{lpl}lqj   +s > s, @ G +s > s,s ryhu s |lhogv up l*v uhdfwlrq ixqfwlrq=
4
U +s, @ +q +vJ  vS ,  +q  4, s . F, =
5
Lw lv lqvwuxfwlyh wr qrwh wkdw uhdfwlrq ixqfwlrqv duh grzqzdug vorslqj1 Wklv
phdqv wkdw/ lq wkh suhvhqw vlwxdwlrq/ sulfhv duh vwudwhjlf vxevwlwxwhv +xvlqj wkh
45
Xvlqj wkh vdph xqlirup glvwulexwlrq ri fuhdwlrq frvwv dv lq Vhfwlrq 6/ zh qg qrz wkh
iuhh0hqwu| qxpehu ri lqirupdwlrq jrrgv dv wkh vroxwlrq wr d fxelf +lqvwhdg ri olqhdu, htxdwlrq1

53
whuplqrorj| ri Exorz hw do1/ 4<;8,1 Wklv vxjjhvwv wkdw/ zkhq frs|lqj lv dffrp0
prgdwhg/ glhuhqw ruljlqdov duh frpsohphqwv/ zkhuhdv ruljlqdov dqg frslhv duh
vxevwlwxwhv1
Rxu fdqglgdwh iru d v|pphwulf Ehuwudqg0Qdvk htxloleulxp zlwk dffrppr0
gdwhg frs|lqj/ s@ / pxvw vroyh s@ @ U +s@ ,/ zklfk |lhogv
q +vJ  vS , . F
s@ @ = +44,
q.4
Qdwxudoo|/ zh qhhg qrz wr lqyhvwljdwh xqghu zklfk frqglwlrqv doo upv fkduj0
lqj s@ lv lqghhg d Qdvk htxloleulxp1 Pruh suhflvho|/ vxssrvlqj wkdw doo rwkhu
upv fkdujh s@ / zh pxvw pdnh vxuh wkdw up l kdv qr lqfhqwlyh wr vhw d sulfh
wkdw zrxog eulqj lw wr d glhuhqw vhjphqw ri ghpdqg wkdq +43,1 Wr gr vr/ zh
qhhg wr ghwhuplqh h{dfwo| zkdw wkh dowhuqdwlyh ghpdqg vhjphqwv orrn olnh dqg
zkhq wkh| duh revhuyhg1 Dv ehiruh/ wkh vwduwlqj srlqw lv frqglwlrq +;,/ zklfk
uhzulwhv khuh dv

vJ  s . U@  O@ >
+
U@  pd{i+q  4, +vJ  s@ , > +q  4, vS  F> 3j
zlwk +45,
O@  pd{i+q  4, +vJ  s@ , > qvS  F> 3j=

Zh vwduw/ lq wkh qh{w ohppd/ e| glvfduglqj d zkroh udqjh ri fdvhv lq zklfk

v|pphwulf frs|lqj dffrpprgdwlrq fdqqrw eh d Qdvk htxloleulxp1

Ohppd 6 Li F  F_ / wkhq doo upv fkdujlqj s@ lv qrw d Ehuwudqg0Qdvk htxl0

oleulxp1

Surri1 Vhh Dsshqgl{ 9171

Wkh uhvxow ri Ohppd 6 lv qrw vxusulvlqj1 E| dqdorj| zlwk wkh yduldeoh0
frs|lqj frvw prgho/ zh h{shfw frs|lqj dffrpprgdwlrq wr ohdg wr kljkhu sulfhv
wkdq frs|lqj ghwhuuhqfh zkhq dffrpprgdwlrq lv fkrvhq dv wkh prvw surwdeoh
rswlrq e| wkh upv1 Wkdw lv/ li dffrpprgdwlrq lv dq htxloleulxp/ wkhq s@ A s_
zklfk lv htxlydohqw wr F ? F_ 1 Li wkh rssrvlwh lv wuxh/ frs|lqj lv frvwo| hqrxjk
wr doorz up l wr ehkdyh dv dq xqfrqvwudlqhg prqrsrolvw zkhq doo rwkhu upv
fkdujh s@ =
Ohppd 6 surylghv d qhfhvvdu| frqglwlrq +l1h1/ F ? F_ , iru d v|pphwulf
htxloleulxp zlwk frs|lqj dffrpprgdwlrq1 Krzhyhu/ wklv frqglwlrq lv idu iurp
vx!flhqw= dgglwlrqdo frqglwlrqv kdyh wr eh phw wr suhyhqw xqlodwhudo ghyldwlrqv1
Xqiruwxqdwho|/ wkhvh frqglwlrqv duh yhu| whglrxv wr ghulyh dv wkh| ghshqg rq wkh
suhflvh frqjxudwlrq ri ghpdqg +zklfk ghshqgv lwvhoi rq wkh ydoxhv ri wkh sd0
udphwhuv/ lq d pxfk pruh frpsolfdwhg zd| wkdq iru F  F_ ,1 Dv d frqvhtxhqfh/
zh vkdoo qrw dwwhpsw khuh wr jlyh d suhflvh fkdudfwhul}dwlrq ri wkh frqjxudwlrqv
ri sdudphwhuv zkhuh v|pphwulf frs|lqj dffrpprgdwlrq lv d Qdvk htxloleulxp1
Lqvwhdg/ zh zloo irfxv rq rqh vshflf fdvh dqg xvh lw wr looxvwudwh wkh qdwxuh ri
xqlodwhudo ghyldwlrqv iurp wkh dffrpprgdwlrq sulfh s@ =

54
 Ohw xv frqvlghu vlwxdwlrqv fkdudfwhul}hg e| wkh iroorzlqj frqglwlrqv=
; ?3
? vS ? ? vJ >
A
+46,
A
= F? ? 3 3
2 E? r Er r 
3
S J
E?2 rJ n2?rS
S
? F_ =

Urxjko| vshdnlqj/ zh wdnh frslhv dv d uhodwlyho| srru/ exw lqh{shqvlyh/ dowhuqd0

wlyh wr ruljlqdov146 Lq vxfk vlwxdwlrqv/ lw fdq eh vkrzq wkdw wkh ghpdqg ixqfwlrq
idflqj up l zkhq doo rwkhu upv vhw wkh dffrpprgdwlrq sulfh s@ lv dv iroorzv=47

G +s > s@ , @
;
A
A Gf  3 iru s  vJ >
A
iru vJ EE??33rRJ@33?rS  s  vJ >
A
A
A
A G  4  R

A
A
rJ
3R@3 E?3R@ 3 +47,
? G2  4  R nE?
iru s@  ?
?ErJ 3rS  3  s  vJ E?3rJ3?rS >
A
A G  4  3
R
iru r J
 s  s@  ? 3 >
A
A
rJ rS
 3 R  ErJ 3rS 
?rS
A
A Ge  4  R
. ?r  rRJ iru E?3rJ  s  ?rS > rJ
A
A rJ 3rS S 3rJ
A
= GD  4  3 rS  =
R
rJ
iru s  E?Er3JrJ

Ohw xv vkhg vrph oljkw rq wkh ydulrxv vhjphqwv frpsrvlqj wkh ghpdqg
ixqfwlrq1 Dv vrrq dv wkh sulfh ri ruljlqdo l lv orzhu wkdq vJ / vrph xvhuv duh
zloolqj wr sxufkdvh wkh jrrg1 Lq vhjphqw G / wkh sulfh lv vr kljk wkdw rqo| wkh
prvw hdjhu +l1h1/ kljk *v, frqvxphuv sxufkdvh jrrg l1 Wkhvh frqvxphuv ghflgh
zkhwkhu wr sxufkdvh jrrg l ru qrw wr xvh lw/ jlyhq wkdw wkh| sxufkdvh dq|zd| doo
wkh rwkhu/ fkhdshu/ lqirupdwlrq jrrgv148 Khqfh/ frqglwlrq +45, erlov grzq iru
wkhp wr vJ  s 1 Vhjphqw G2 / zklfk fruuhvsrqgv wr +43,/ lv rewdlqhg zkhq s
lv vhw lq wkh ylflqlw| ri s@ 1 Rq wrs ri wkh suhylrxv kljk *v frqvxphuv/ up l dovr
dwwudfwv frqvxphuv zkr suhihu sxufkdvlqj udwkhu wkdq frs|lqj doo jrrgv1 E|
ixuwkhu ghfuhdvlqj lwv sulfh/ up l pdqdjhv wr dwwudfw vrph orzhu0 frqvxphuv1
Wkhvh frqvxphuv duh uhvroxwh wr frs| doo rwkhu jrrgv qr pdwwhu zkdw> exw li s
lv vx!flhqwo| orz/ wkh| pljkw suhihu wkh ruljlqdo ri jrrg l wr wkh frs|1 Wkdw lv/
frqglwlrq +45, zulwhv iru wkhvh frqvxphuv dv= vJ s .+q  4, vS F  qvS F
+,  +vJ  vS ,  s / zklfk jhqhudwhv vhjphqw G 1 Ilqdoo|/ d ixuwkhu ghfuhdvh
lq s dwwudfwv wkh yhu| orz0 frqvxphuv zkr ghflgh wr sxufkdvh dqg xvh rqo|
jrrg l> vhjphqw Ge +uhvs1 GD , fruuhvsrqgv wr wkh fdvh zkhuh wkhvh frqvxphuv*
vhfrqg prvw0suhihuuhg rswlrq lv wr frs| doo jrrgv +uhvs1 qrw wr xvh dq| jrrg,1
Qrz/ zh hvwdeolvk frqglwlrqv xqghu zklfk s @ s@ lv qrw up l*v ehvw uh0
vsrqvh1 Zh uvw qrwh wkdw s @ s@ lv wkh orfdo rswlpxp fruuhvsrqglqj wr
46
Wkh frqglwlrq rq  lv frpsdwleoh zlwk rxu lqlwldo uhtxluhphqw wkdw  : rS li dqg rqo|
 2   
li ? 3 ? n 2 ?rS ?2 3 ? 3  E? 3  rJ / zklfk lv lwvhoi frpsdwleoh zlwk wkh rwkhu lqlwldo
uhtxluhphqw wkdw ?rS : rJ dv orqj dv ? : 21
47
Wkh ghprqvwudwlrq lv dydlodeoh xsrq uhtxhvw iurp wkh dxwkru1
48
Wkh rwkhu jrrgv duh fkhdshu ehfdxvh  _ lpsolhv wkdw rJ EE??33rRrd33?r

f
: R@ 1

55
vhjphqw G2 dqg |lhogv up l d surw ri49

+q +vJ  vS , . F,2
 @ +q, @ = +48,
+q . 4,2 q +vJ  vS ,

Wklv orfdo rswlpxp/ krzhyhu/ pljkw qrw frqvwlwxwh d joredo rswlpxp1 Lq

sduwlfxodu/ vxssrvh wkdw up l ghyldwhv e| vhwwlqj d sulfh fruuhvsrqglqj wr
vhjphqw G 1 Ilup l zrxog pd{lpl}h lwv surwv xqghu wklv ghpdqg e| vhw0
wlqj s @ +vJ  vS , @51 Wklv sulfh lv ihdvleoh surylghg wkdw +vJ  vS , @5 
FvJ @ +qvS , +, F  qvS +vJ  vS , @ +5vJ ,1 Vxssrvlqj wkdw wkh odwwhu frq0
glwlrq lv phw +zklfk lwvhoi uhtxluhv wkdw q A 6 wr pdnh vxuh wkdw frqglwlrq
+9, fdq vwloo eh vdwlvhg,/ up l*v pd{lpxp surw ryhu vhjphqw G lv htxdo
wr   @ +vJ  vS , @71 Vrph olqhv ri frpsxwdwlrqv hvwdeolvk wkdw wkh glhuhqfh
 @ +q,    lv htxlydohqw lq vljq wr 7F 2 . ;q +vJ  vS , F  q +q  4,2 +vJ  vS ,2 1
Wklv txdgudwlf irup lq F dgplwv wzr uhdo urrwv/ rqh srvlwlyh dqg rqh qhjd0
s
wlyh1 Wkh srvlwlyh urrw lv htxdo wr +vJ  vS , ++q . 4, q  5q, @5/ zklfk fdq eh
vkrzq wr eh odujhu wkdq qvS +vJ  vS , @ +5vJ , xqghu frqglwlrqv +46,1 Lw iroorzv
wkdw wkh txdgudwlf irup lv qhjdwlyh hyhu|zkhuh/ phdqlqj wkdw   A  @ +q, lq
wkh vlwxdwlrqv xqghu uhylhz1
Zh forvh wkh glvfxvvlrq e| kljkoljkwlqj wkh lqwxlwlrq ehklqg wkh suhylrxv
qglqj1 E| vhwwlqj d sulfh vx!flhqwo| orzhu wkdq s@ / up l uhdfkhv vhjphqw
G dqg d odujhu qxpehu ri xvhuv1 Lq sduwlfxodu/ lw dwwudfwv wkrvh frqvxphuv
zkr duh ehwwhu r frs|lqj doo jrrgv udwkhu wkdq sxufkdvlqj wkhp doo/ exw zkr
zrxog eh uhdg| wr sxufkdvh jrrg l +dqg vwloo frs| doo rwkhu jrrgv, li lw zdv
vx!flhqwo| fkhdshu wkdq wkh rwkhu jrrgv1 Krz fkhds jrrg l vkrxog eh ghshqgv
rq wkh frvw ri wkh frs|lqj whfkqrorj|= li wklv frvw lv uhodwlyho| orz/ frs|lqj rqh
ohvv jrrg lv qr elj vdfulfh iru wkh xvhuv/ dqg d uhodwlyho| vpdoo glvfrxqw rq
jrrg l zloo lqgxfh wkhp wr ex| wkh jrrg1 Lq vxfk lqvwdqfhv/ wkh lqfuhdvh lq wkh
qxpehu ri xvhuv pdnhv xs iru wkh ghfuhdvh lq wkh xqlw sulfh dqg wkh ghyldwlrq
lv surwdeoh14:

718 Frpsdulvrq zlwk wkh frooxvlyh rxwfrph

Wr hpskdvl}h wkh hhfwv ri vwudwhjlf lqwhudfwlrq/ ohw xv frpsduh wkh suhylrxv
uhvxowv zlwk zkdw zrxog eh revhuyhg li wkh q surgxfhuv ri lqirupdwlrq jrrgv
zhuh deoh wr frooxgh1 Wkh fduwho ri surgxfhuv zrxog dfw dv d pxowlsurgxfw pr0
qrsrolvw/ pd{lpl}lqj lwv surw e| vhwwlqj d sulfh iru doo q lqirupdwlrq surgxfwv1
Dv lq wkh suhylrxv vhfwlrq/ zh irfxv rq v|pphwulf sulfh yhfwruv14; Ohwwlqj t
49
Lw fdq eh fkhfnhg wkdw +l, Z @ E? lv d ghfuhdvlqj ixqfwlrq ri ?/ dqg +ll,  _ lpsolhv
wkdw Z @ E? Z K E? ' rJ *e1
4:
Iru kljkhu {hg frs|lqj frvwvl1h1/ iru  : ?rS ErJ 3 rS  * E2rJ / up *v ehvw srvvleoh
ghyldwlrq lv wr vhw wkh fruqhu vroxwlrq sulfh R ' rJ * E?rS 1 \hw/ lw lv vwloo srvvleoh wkdw wklv
frqvwudlqhg vroxwlrq |lhogv d kljkhu surw wkdq Z@ E?1
4;
Dv wkh ? surgxfwv duh lghqwlfdo/ lw vhhpv qdwxudo wr vxssrvh wkdw wkh| duh sulfhg wkh vdph1
Krzhyhu/ zh ohdyh lw wr ixwxuh uhvhdufk wr hvwdeolvk wkdw wklv lv lqghhg dq rswlpdo vwudwhj| iru

56
ghqrwh wkh frpprq sulfh iru wkh q surgxfwv/ lw lv hdv| wr ghyhors h{suhvvlrq
+;, dqg ghulyh wkh ghpdqg ixqfwlrq iru dq| surgxfw dv
;
A
? 3 li t  vJ  vS . ?
G+t, @ 4  ?E?^ 3 li rJ  t  v  v . 
rJ 3rS  J S
A
= 4 ^
?rS ?

rf
li s  rJ
?rS
=

Wkh fduwho wkhuhiruh idfhv wkh iroorzlqj wzrirog pd{lpl}dwlrq surjudp=

;  
? hlwkhu pd{^ qt 4  ?E?^ 3 v1w1 rJ  t  v  v .  >
 rJ 3rS 
J S
 ?rS ?

= ru pd{^ qt 4  rf v1w1 t  ?rS =

^ rJ

Uhfdoolqj h{suhvvlrqv +6, dqg +7,/ lw lv txlfno| vhhq wkdw wklv surjudp lv
htxlydohqw wr wkh vlqjoh surgxfhu*v surjudp ri Vhfwlrq 5/ xs wr wkh iroorzlqj
fkdqjh ri yduldeoh= F  qf1 Wkh fduwho*v rswlpdo ehkdylru +zlwk v|pphwulf
sulflqj, fdq wkxv eh uhdg iurp Sursrvlwlrq 4=

 tK @ r2J > iru ?r2 S  F  qvS +frs|lqj lv eorfndghg,/



 J 3 rS 
 t_ @ r J
> iru ?r2SrEJr3  F  ?r2 S +frs|lqj lv ghwhuuhg,/
 ?rS rS


 t @ ?ErJ 3rS n > iru 3  F  ?rS ErJ 3rS  +frs|lqj lv dffrpprgdwhg,1
@ 2? 2rJ 3rS
+49,

Ohw xv qrz frpsduh wkh uhvxowv lq +49, zlwk wkh rqhv uhfrughg lq Sursr0
vlwlrqv 708/ dqg lq h{suhvvlrqv +44, dqg +48,1 Dv idu dv eorfndghg frs|lqj lv
frqfhuqhg/ wkhuh lv qr glhuhqfh= sK @ tK dqg wkhvh sulfhv duh rswlpdo lq wkh
vdph uhjlrq ri sdudphwhuv1 Wklv lv qrw vxusulvlqj dv vwudwhjlf lqwhudfwlrq glvds0
shduv zkhq frs|lqj h{huwv qr wkuhdw1 Uhjduglqj frs|lqj ghwhuuhqfh/ vwudwhjlf
lqwhudfwlrq lqwurgxfhv d qrwlfhdeoh glhuhqfh= lw grhv qrw prgli| wkh olplw sulfh
+s_ @ t_ , exw lw qduurzv wkh uhjlrq ri sdudphwhuv zkhuh hqwu| ghwhuuhqfh lv wkh
rswlpdo frqgxfw1 Wkh odwwhu srlqw lv hvwdeolvkhg e| frpsdulqj +<, zlwk +49,
dqg fkhfnlqj wkdw

qvS +vJ  vS , q2 vS +vJ  vS ,

? F_  =
5vJ  vS +q . 4, vJ  qvS
Lq rwkhu zrugv/ frooxvlrq pdnhv ghwhuuhqfh ri frs|lqj hdvlhu +l1h1/ rswlpdo iru d
zlghu udqjh ri frvwv ri wkh frs|lqj whfkqrorj|,1 Wklv lv dqrwkhu looxvwudwlrq ri
wkh iuhh0ulglqj sureohp ghvfulehg deryh1
Ilqdoo|/ dv idu dv frs|lqj dffrpprgdwlrq lv frqfhuqhg/ wkh lpsdfw ri vwudwh0
jlf lqwhudfwlrq dsshduv dovr txlwh fohduo|1 D txlfn frpsdulvrq ri +44, dqg +49,
uhyhdov wkdw s@ A t@ 1 Pruhryhu/ frpsxwlqj d up*v surw zkhq frs|lqj lv fro0
oxvlyho| dffrpprgdwhg dqg frpsdulqj lw wr h{suhvvlrq +48,/ rqh revhuyhv wkdw
wkh pxowlsurgxfw prqrsrolvw1

57
frooxvlrq |lhogv kljkhu surwv1 Wr xqghuvwdqg zk|/ xqghu vwudwhjlf lqwhudfwlrq/
kljkhu sulfhv ohdg wr orzhu surwv/ lw vx!fhv wr uhfdoo iurp wkh suhylrxv vhfwlrq
wkdw sulfhv duh vwudwhjlf vxevwlwxwhv xqghu frs|lqj dffrpprgdwlrq1

8 Frqfoxvlrq
Lqirupdwlrq jrrgv idoo lq wkh fdwhjru| ri sxeolf jrrgv zlwk h{foxvlrq/ wkdw lv/
sxeolf jrrgv wkh frqvxpswlrq ri zklfk e| lqglylgxdov fdq eh frqwuroohg/ phd0
vxuhg dqg vxemhfwhg wr sd|phqw ru rwkhu frqwudfwxdo olplwdwlrq +Guë}h/ 4<;3,1
H{foxvlrq fdq eh dfklhyhg wkurxjk ohjdo dxwkrulw| dqg2ru whfkqlfdo phdqv1
Krzhyhu/ vlpso| vshfli|lqj lqwhoohfwxdo surshuw| odzv grhv qrw hqvxuh wkdw wkh|
zloo eh hqirufhg> vlploduo|/ whfkqlfdo surwhfwlyh phdvxuhv duh riwhq lpshuihfw dqg
fdq eh fudfnhg1 Dv d uhvxow/ loolflw frs|lqj +ru sludf|, fdqqrw eh frpsohwho|
dyrlghg1 Lw lv wkhuhiruh h{wuhpho| lpsruwdqw wr xqghuvwdqg krz frs|lqj dhfwv
wkh ghpdqg iru ohjlwlpdwh lqirupdwlrq jrrgv dqg wkh sulflqj ehkdylru ri wkhlu
surgxfhuv1 Lw lv htxdoo| lpsruwdqw/ iru srolf| sxusrvhv/ wr lghqwli| fohduo| wkh
zhoiduh lpsolfdwlrqv ri frs|lqj1
Wklv sdshu dgguhvvhv wkhvh txhvwlrqv zlwklq d vlpsoh/ xqlhg prgho ri frp0
shwlwlrq ehwzhhq ruljlqdov dqg frslhv1 Zh xvh wkh yhuwlfdo glhuhqwldwlrq iudph0
zrun sursrvhg e| Pxvvd dqg Urvhq +4<:;,= frslhv duh vhhq dv orzhu0txdolw|
dowhuqdwlyhv wr ruljlqdov1 Lq d ehqfkpdun prgho/ zh frqvlghu wkh pdunhw iru d
vlqjoh lqirupdwlrq jrrg1 Zh lghqwli| frqglwlrqv derxw wkh uhodwlyh dwwudfwlyh0
qhvv ri frslhv xqghu zklfk wkh surgxfhu hlwkhu fdq vdiho| ljqruh wkh wkuhdw ri
frs|lqj/ ru kdv wr prgli| klv ehkdylru dqg ghflgh zkhwkhu wr cghwhu* ru cdffrp0
prgdwh* frs|lqj1 Lq wkh odwwhu wzr fdvhv/ zh vkrz wkdw wkh frpshwlwlrq fuhdwhg
e| frs|lqj hqkdqfhv vrfldo zhoiduh1 Krzhyhu/ wkh zhoiduh lqfuhdvh frphv dw wkh
h{shqvh ri wkh surgxfhu*v surwv/ zklfk pljkw wkhq eh lqvx!flhqw wr fryhu wkh
+srwhqwldoo| kljk, {hg frvw ri fuhdwlrq1
Wr dffrxqw iru wklv wudglwlrqdo wudgh0r ehwzhhq h{ dqwh dqg h{ srvw h!0
flhqf| frqvlghudwlrqv/ zh h{whqg wkh ehqfkpdun prgho e| frqvlghulqj dq du0
elwudu| qxpehu ri lqirupdwlrq jrrgv1 Zh frqvlghu wzr glvwlqfw vfhqdulrv1 Lq
wkh uvw vfhqdulr/ zh dvvxph wkdw wkh frs|lqj whfkqrorj| lqyroyhv d frqvwdqw
xqlw frvw dqg qr {hg frvw1 Xqghu wklv dvvxpswlrq/ ghpdqgv iru ruljlqdov duh
frpsohwho| lqghshqghqw ri rqh dqrwkhu dqg zh fdq vlpso| uhsurgxfh wkh uhvxowv
ri wkh ehqfkpdun prgho1 Dvvxplqj d {hg fuhdwlrq frvw wkdw ydulhv wkurxjk
surgxfhuv/ zh ghulyh wkh iuhh0hqwu| qxpehu ri lqirupdwlrq jrrgv1 Zh fdq wkhq
edodqfh h{ dqwh dqg h{ srvw h!flhqf| frqvlghudwlrqv dqg vkrz wkdw frs|lqj lv
olnho| wr gdpdjh zhoiduh lq wkh orqj uxq +xqohvv frslhv duh d srru dowhuqdwlyh wr
ruljlqdov dqg2ru duh h{shqvlyh wr dftxluh,1
Wkh vhfrqg vfhqdulr dvvxphv wkdw wkh frs|lqj whfkqrorj| lqyroyhv d srvlwlyh
{hg frvw dqg qr pdujlqdo frvw1 Wkh ghpdqgv iru ruljlqdov duh qrz lqwhugh0
shqghqw ehfdxvh frqvxphuv edvh wkhlu ghflvlrq wr frs| rq wkh {hg frvw ri

58
wkh whfkqrorj| dqg rq wkh sulfhv ri doo ruljlqdov1 Gxh wr wkh frpsoh{lw| ri
wkh ghpdqg v|vwhp dqg ri wkh uhvxowlqj vwudwhjlf sulflqj jdph/ zh duh xqdeoh
wr surylgh d frpsohwh fkdudfwhul}dwlrq ri wkh vhw ri Ehuwudqg0Qdvk htxloleuld1
Krzhyhu/ zh forvho| h{dplqh v|pphwulf htxloleuld lq zklfk frs|lqj lv hlwkhu
eorfndghg/ ghwhuuhg ru dffrpprgdwhg1 Zh vkrz/ lq sduwlfxodu/ wkdw wkh odwwhu
wzr htxloleuld uho| rq d vhw ri udwkhu uhvwulfwlyh frqglwlrqv/ dv wkh lqfhqwlyhv
iru xqlodwhudo ghyldwlrq duh kljk= surgxfhuv whqg wr iuhh0ulgh +e| vhwwlqj kljkhu
sulfhv, zkhq lw frphv wr ghwhuulqj frs|lqj/ ru wkh| whqg wr xqghufxw zkhq lw
frphv wr dffrpprgdwlqj frs|lqj1
Wkh gluhfwlrqv iru ixwxuh uhvhdufk duh wzrirog1 Iluvw/ dqg txlwh reylrxvo|/
pruh zrun qhhgv wr eh grqh rq wkh {hg0frs|lqj frvw prgho1 Wkh fkdudfwhu0
l}dwlrq ri Ehuwudqg0Qdvk htxloleuld vkrxog eh frpsohwhg1 Zh qhhg qrw rqo|
wr fkdudfwhul}h doo v|pphwulf htxloleuld lq sxuh vwudwhjlhv/ exw dovr wr hqylvlrq
dv|pphwulf htxloleuld dqg pl{hg vwudwhjlhv1 Lw lv lqghhg yhu| olnho| wkdw pl{hg
vwudwhjlhv fdqqrw eh glvshqvhg zlwk lq wklv frqwh{w= ehfdxvh ghpdqg ixqfwlrqv
duh glvfrqwlqxrxv/ sd|r ixqfwlrqv pd| idlo wr eh txdvl0frqfdyh/ zklfk pd|
ohdg wr wkh qrq0h{lvwhqfh ri dq htxloleulxp lq sxuh vwudwhjlhv +vhh Gdvjxswd
dqg Pdvnlq/ 4<;9,1
Wkh vhfrqg gluhfwlrq iru ixwxuh uhvhdufk frqvlvwv lq h{sorlwlqj wkh wzr yhu0
vlrqv ri wkh prgho wr dgguhvv wrslfdo lvvxhv1 Iru lqvwdqfh/ zh frxog wu| dqg
dvvhvv wkh hhfwv ri hqkdqflqj whfkqlfdo surwhfwlyh phdvxuhv iru lqirupdwlrq
jrrgv1 D fdvh ri lqwhuhvw lv wkh vr0fdoohg xqulssdeoh FG= ehfdxvh wkh whfk0
qlfdo phdvxuh vhhpv wr ghfuhdvh wkh txdolw| ri erwk ruljlqdov dqg frslhv +lw lv
fodlphg wkdw wkhvh FGv fdqqrw eh frslhg exw/ dw wkh vdph wlph/ ohjlwlpdwh
xvhuv pljkw qrw eh deoh wr sod| wkh FG rq wkh ghylfh ri wkhlu fkrlfh,/ lw lv qrw
d sulrul hylghqw wkdw vxfk vwudwhj| lv surwdeoh1

9 Dsshqgl{
914 Ghulydwlrq ri ghpdqg zlwk {hg frs|lqj frvwv
Ohw xv eulh | ghvfuleh wkh rshudwlrqv wkdw vhsdudwh frqglwlrq +;, iurp d frp0
sohwh fkdudfwhul}dwlrq ri wkh ghpdqg ixqfwlrq iru ruljlqdo l1

41 Zh qhhg uvw wr ghwhuplqh wkh ydoxhv ri wkh wzr pd{lpd iru doo frpelqd0
wlrqv ri sdudphwhuv1 Uhjduglqj wkh OKV/ wzr sdwwhuqv hphujh dffruglqj
wr zkhwkhu s lv ehorz ru deryh sa  vJ F@ ++q  4, vS ,1 Uhjduglqj wkh UKV/
irxu sdwwhuqv kdyh wr eh glvwlqjxlvkhg/ ghshqglqj rq wkh ydoxh ri s +wkh
wkuhvkrog ehlqj khuh s  vJ F@qvS ? sa, dqg rq wkh ydoxh ri vS @vJ +wkh
wkuhvkrog ehlqj +q  4, @q,1 Furvvlqj wkhvh sdwwhuqv/ zh lghqwli| vl{ gli0
ihuhqw uhjlphv= 6 fdvhv ghwhuplqhg e| wkh ydoxh ri s +s A sa> s ? s  sa/
dqg s ? s, wlphv wzr fdvhv ghwhuplqhg e| wkh ydoxh ri vS @vJ +ehorz ru
deryh +q  4, @q,1

59
 51 Qh{w/ lq hdfk ri wkh vl{ uhjlphv/ zh qhhg wr frpsduh wkh pd{lpd rq
wkh wzr vlghv ri wkh lqhtxdolw|1 Grlqj vr/ zh fdq ghqh lqwhuydov iru
wkh ydoxh ri  lqvlgh zklfk frqglwlrq +;, wdnhv d vshflf irup1 Iru lq0
vwdqfh/ lq wkh uhjlph ghqhg e| s A sa dqg vS @vJ ? +q  4, @q/ wkhuh
duh yh vxfk glhuhqw lqwhuydov/ rqh ri wkhp ehlqj wkh iroorzlqj= iru
 5 ^F@qvS > F@ ++q  4,vS ,`/ frqglwlrq +;, uhzulwhv dv vJ  s  qvS  F
+,   +F  s , @+qvJ  vS ,14<

61 Iru hdfk lqwhuydo vr ghqhg/ wkh qh{w vwhs frqvlvwv lq hvwdeolvklqj frqgl0
wlrqv rq s xqghu zklfk wkh vshflf irup ri frqglwlrq +;, lv vdwlvhg1 Lq
wkh suhylrxv h{dpsoh/ lw fdq eh fkhfnhg wkdw wkh frqglwlrq lv +l, qhyhu
phw lq wkh lqwhuydo li s  FvJ @ +qvS , > dqg +ll, dozd|v phw lq wkh lqwhuydo
li s  F +vJ  vS , @ ++q  4, vS , =

71 Wkh odvw rshudwlrq frqvlvwv lq froohfwlqj doo wkh suhylrxv uhvxowv dqg wr
lghqwli|/ iru glhuhqw udqjhv ri s / wkh fruuhvsrqglqj pdvv ri frqvxphuv
zkr suhihu ex|lqj ruljlqdo l1 Wkh uhvxowlqj ghpdqg ixqfwlrq zloo w|slfdoo|
h{klelw d qxpehu ri nlqnv +xs wr 8 lq vrph uhjlphv> vhh h{suhvvlrq +47,
iru dq looxvwudwlrq,1

Reylrxvo|/ wklv fxpehuvrph surfhvv lv rqo| d suholplqdu| vwhs wrzdugv wkh

fkdudfwhul}dwlrq ri wkh vhw ri Qdvk htxloleuld lq sulfhv1 Lqghhg/ zh vkrxog qh{w
xvh wkh ghpdqg ixqfwlrq wr pd{lpl}h up l*v surw dqg/ wkhuhe|/ ghulyh up
l*v uhdfwlrq ixqfwlrq1 Lw lv hdvlo| xqghuvwrrg wkdw wkh frpelqdwlrq ri vhyhudo
ghpdqg uhjlphv dqg vhyhudo nlqnv lq wkh ghpdqg ixqfwlrq xqghu hdfk uhjlph
pdnhv wklv surfhvv hyhq pruh gdxqwlqj wkdq wkh suhylrxv rqh1 Ixuwkhupruh/
ehfdxvh ghpdqg ixqfwlrqv duh glvfrqwlqxrxv/ sd|r ixqfwlrqv pd| idlo wr eh
txdvl0frqfdyh/ zklfk pd| ohdg wr wkh qrq0h{lvwhqfh ri dq htxloleulxp lq sxuh
vwudwhjlhv +vhh Gdvjxswd dqg Pdvnlq/ 4<;9,1

915 Surri ri Sursrvlwlrq 7

Vxssrvh wkdw F  +q@5, vS dqg s @ sK @ vJ @5 ;m 9@ l= Ohw xv vkrz wkdw s @ sK
lv up l*v ehvw uhvsrqvh lq wklv fdvh1 Zkhq doo rwkhu upv fkdujh vJ @5/ frqglwlrq
+;, ehfrphv

vJ  s . UK  OK >
+
UK  pd{i+q  4, r2J +5  4, > +q  4, vS  F> 3j
zlwk +4:,
OK  pd{i+q  4, r2J +5  4, > qvS  F> 3j=

+4, Zh uvw hvwdeolvk wkdw OK fdqqrw eh htxdo wr +q  4, vS F= Lqghhg/ vxs0
srvh wkh frqwudu|1 Wkhq/ zh pxvw kdyh +l, +q  4, vS  F  +q  4, r2J +5  4,
4<
Wkh frqvxphuv lq wklv lqwhuydo ghflgh hlwkhu wr sxufkdvh dqg frqvxph  rqo|/ ru wr frs|
doo surgxfwv1

5:
+,   ^+q  4, +vJ @5,  F`@^+q  4, +vJ  vS ,`/ dqg +ll, +q  4, vS  F  3
+,   F@^+q  4, vS `1 Lw lv hdvlo| fkhfnhg wkdw wkh lqwhuydo rq  ghqhg e| wkh
odwwhu wzr lqhtxdolwlhv lv qrq0hpsw| surylghg wkdw F ? +q  4,vS @5/ zklfk ylr0
odwhv rxu lqlwldo dvvxpswlrq1 Zh wkxv frqfoxgh wkdw OK htxdov +q  4, r2J +5  4,
iru   4@5/ dqg 3 rwkhuzlvh1
+5, Dv iru UK / zh uvw vkrz wkdw UK @ OK zkhq +q  4, vJ A qvS 1 Lq wklv
fdvh/ UK fdqqrw eh htxdo wr qvS  F1 Lqghhg/ xvlqj d vlplodu dujxphqw dv
deryh/ UK @ qvS  F zrxog qhfhvvlwdwh wkdw  eh frpsulvhg ehwzhhq F@+qvS ,
dqg ^+q  4, +vJ @5,  F`@^+q  4, vJ  qvS `/ zklfk lv lpsrvvleoh iru F  +q@5, vS 1
Lw iroorzv wkdw UK @ OK dqg wkdw frqvxphuv ex|lqj ruljlqdo l duh fkdudfwhul}hg
e| vJ  s  3= Wkhuhiruh/ up l idfhv d ghpdqg G +s > sK , @ +4  s @vJ , dqg
lwv surw0pd{lpl}lqj sulfh lv s @ sK / zklfk frpsohwhv wkh surri iru wklv fdvh1
+6, Zkhq +q  4, vJ ? qvS / UK fdq wdnh wkuhh ydoxhv=
; 3E?3ErJ*2 >
? qvS  F
A iru   ?r S 3E?3rJ

UK @ 
+q  4, 2 +5  4, iru 2    ?r
rJ 3E?3ErJ *2 >
A S 3E?3rJ
=
3 iru   2 =
Qrwh wkdw/ ehfdxvh   4/ wkh uvw rswlrq +UK @ qvS  F, lv srvvleoh rqo| li
F ? F  qvS  ?3  
2 vJ +zlwk F A +q@5, vS ,1 Li wkh uhyhuvh lv wuxh/ wkhq zh kdyh
djdlq wkdw UK @ OK dqg wkh surri lv frpsohwhg1 Vxssrvlqj F ? qvS  ?3 
2 vJ /
 3E?3ErJ *2
ghqh s2  F  qvS . ?n2 vJ dqg s2  vJ ?rS 3E?3rJ = Zh fdq vxppdul}h wkh
dqdo|vlv ri lqhtxdolw| +4:, dv iroorzv=

k iru  5 l +4:, uhzulwhv dv qhyhu phw li dozd|v phw li

3E?3ErJ*2 > 4  
 R nE? 3ErJ*23 s  s2 s  s2
?rS 3E?3rJ ?ErJ 3rS 
k l
3E?3ErJ*2
3> ?r  R
s  s2 2
S 3E?3rJ rJ

Zh fdq qrz zulwh wkh ghpdqg idflqj up l=

;
 v  A ? 3 li s  s2 >
4  R nE??3ErE rJ *23
J
G s > @ J 3rS 
li s2  s  s2 >
5 A
=
4  rRJ li s  s2 =
Li up l fkrrvhv wkh wklug vhjphqw ri ghpdqg/ wkh +xqfrqvwudlqhg, rswlpdo sulfh
lv s @ vJ @51 Lw lv uhdglo| fkhfnhg wkdw wklv sulfh phhwv wkh frqvwudlqw zkhq
F  +q@5, vS 1 Wklv rswlrq doorzv wkxv wkh up wr dfklhyh d surw ri  E @ vJ @71
Rq wkh rwkhu kdqg/ li up l fkrrvhv wkh vhfrqg vhjphqw ri ghpdqg/ lw fdq eh
vkrzq wkdw/ zlwk F  +q@5, vS / wkh lqwhulru rswlpxp lv qrw ihdvleoh1 Wkh ehvw
up l fdq gr lv wr fkdujh s @ s2 / zklfk |lhogv d surw ri
vJ +5F  +q  4, vJ , +5qvS  +q  4, vJ  5F,
 E2 @ =
7 +qvS  +q  4, vJ ,2
Qrz/ ehfdxvh
vJ +5F  qvS ,2
 E   E2 @ A 3>
7 +qvS  +q  4, vJ ,2

5;
up l suhihuv wkh wklug vhjphqw ri ghpdqg/ zklfk lpsolhv wkdw l*v ehwv uhvsrqvh
lv vwloo s @ vJ @51

916 Surri ri Sursrvlwlrq 8

Vxssrvh s @ s @ +FvJ , @ +qvS , ;m 9@ l1 Zh qhhg wr ghwhuplqh zkhq s @ s_ lv
up l*v ehvw uhvsrqvh1 Zh vwduw e| ghulylqj wkh ghpdqg ixqfwlrq idflqj up l/
G +s > s_ ,1 Zkhq doo rwkhu upv fkdujh s_ / frqglwlrq +;, ehfrphv

vJ  s . U_  O_ >
+
U_  pd{i+q  4, +vJ  s_ , > +q  4, vS  F> 3j
zlwk +4;,
O_  pd{i+q  4, +vJ  s_ , > qvS  F> 3j=

Vwudljkwiruzdug frpsxwdwlrqv hvwdeolvk wkdw wkh h{dfw ydoxhv ri PU dqg PO

duh dv iroorzv=
 iru 3    ?r

S
> U_ @ O_ @ 3>
 iru ?rS    4> U_ @ +

+q  4, +vJ  s_ ,
+q  4, +vJ  s_ , li qvS  +q  4, vJ >
O_ @
qvS  F li qvS A +q  4, vJ =

Li qvS  +q  4, vJ / wkhq U_ @ O_ ;1 Lw iroorzv wkdw frqglwlrq +4;, erlov

grzq wr vJ s  3/ zklfk lpsolhv wkdw G +s > s_ , @ 4s @vJ > dqg wkdw up l*v
rswlpdo sulfh lv s @ vJ @5 9@ s_ 1 Wkhuhiruh/ iru v|pphwulf frs|lqj ghwhuuhqfh
wr eh d Qdvk htxloleulxp/ lw lv qhfhvvdu| wkdw qvS A +q  4, vJ 1 Lq vxfk d
fdvh/ frqglwlrq +4;, kdv wzr srvvleoh irupv= vJ  s  3 iru   F@ +qvS ,/ ru
qvJ  s  +q  4, s_  qvS  F iru   F@ +qvS ,1 Frpsxwlqj wkh frqglwlrqv
rq s xqghu zklfk hdfk vshflf irup lv vdwlvhg lq wkh uhohydqw udqjh/ zh ghulyh
l*v ghpdqg ixqfwlrq dv
;
? 3
A li s  q +vJ  vS , . F  +q  4, s_ >
R nE?3R_ 3
G +s > s, @ 4  ?ErJ 3rS  li s_  s  q +vJ  vS , . F  +q  4, s_ >
A
=
4  rJ
R
li s  s_ =

Iru up l*v ehvw uhvsrqvh wr eh s @ s_ / wkh lqwhulru vroxwlrqv zkhq l*v pd{lpl}hv
ryhu wkh vhfrqg ru wklug vhjphqwv ri ghpdqg pxvw eh lqihdvleoh1 Dv iru wkh
vhfrqg vhjphqw/ wkh xqfrqvwudlqhg rswlpxp lv s @ sE2  +4@5,+q +vJ  vS ,.F
 +q  4, s_ ,> rqh hdvlo| fkhfnv wkdw sE2  s_ iru F  F_ 1 Dv iru wkh wklug
vhjphqw/ wkh xqfrqvwudlqhg rswlpxp lv s @ vJ @5/ zklfk lv fohduo| odujhu wkdq
s_ iru F  +q@5, vS 1 Wklv frpsohwhv wkh surri1

917 Surri ri Ohppd 6

Wkh uvw wklqj wr qrwh lv wkdw F  F_ +, s@  +vJ F,@ +qvS , = Lq wklv fdvh/
wkh frpsdulvrq ehwzhhq U@ dqg O@ lv udwkhu vlpsoh1 Iluvw/ li +q  4, vS A qvJ /

5<
lw lv hdvlo| fkhfnhg wkdw U@ @ O@ ;1 Lw iroorzv wkdw frqglwlrq +45, erlov grzq
wr vJ  s  3> dqg zh nqrz wkdw up l*v ehvw uhso| lv wkhq s @ vJ @5 9@ s@ /
zklfk hvwdeolvkhv rxu uhvxow iru wklv sduwlfxodu fdvh1 Vhfrqg/ li +q  4, vS ? qvJ /
wkh dqdo|vlv ri frqglwlrq +45, fdq eh vxppdul}hg e| wkh iroorzlqj wdeoh +edvhg
rq vwudljkwiruzdug frpsxwdwlrqv,=

k iru  5 l +45, uhzulwhv dv qhyhu phw li dozd|v phw li

3E?3R@ > 4   R nE?3R@ 3 s  5s@  3E?3R@
s  vJ ?r
?rS 3E?3rJ ?ErJ 3rS  S 3E?3rJ
k l
 3E?3R@  3E?3R@
3> ?rS 3E?3rJ   rRJ s  vJ ?r S 3E?3rJ
2
Zh fdq qrz zulwh wkh ghpdqg idflqj up l=
;
? 3
A li s  5s@ >
R nE?3R@ 3  3E?3R@
G +s > s@ , @ 4  ?ErJ 3rS  li vJ ?rS 3E?3rJ
 s  5s@ >
A
=  3E?3R@
4  rJ
R
li s  vJ ?rS 3E?3rJ =

Iru s@ wr eh up l*v ehvw uhso|/ lw pxvw eh wkh fdvh wkdw up l vhohfwv wkh vhf0
rqg vhjphqw ri ghpdqg dqg wkdw wkh lqwhulru vroxwlrq wr lwv surw0pd{lpl}dwlrq
sureohp eh ihdvleoh1 Wklv lv vr surylghg wkdw
F  +q  4, s@ vJ F
s@  vJ +, s@  >
qvS  +q  4, vJ qvS
zklfk frqwudglfwv rxu lqlwldo dvvxpswlrq dqg frpsohwhv wkh surri1

Uhihuhqfhv
^4` Dssohedxp/ H1 dqg Zhehu/ V1 +4<<5,1 D qrwh rq wkh iuhh ulghu sureohp lq
roljrsro|1 Hfrqrplfv Ohwwhuv 73= 7:607;31

^5` Edlq/ M1 +4<89,1 Eduulhuv wr qhz frpshwlwlrq1 Kduydug Exvlqhvv Suhvv/ Fdp0
eulgjh +Pdvv1,1

^6` Ehq0Vkdkdu/ G1 dqg Mdfre/ D1 +5334,1 Suhdfk iru d euhdfk= Vhohfwlyh hq0
irufhphqw ri frs|uljkwv dv dq rswlpdo prqrsrolvwlf ehkdylru1 Plphr/ Dul0
vrq Vfkrro ri Exvlqhvv/ Lvudho1 Dydlodeoh dw kwws=22zzz1idfxow|1lgf1df1lo2ehq0
vkdkdu2sdshuv2Suhdfk(53iru(53d(53Euhdfk(535313:1341sgi

^7` Ehvhq/ V1P1 dqg Nlue|/ V1Q1 +4<;<,1 Sulydwh frs|lqj/ dssursuldelolw|/ dqg
rswlpdo frs|lqj ur|dowlhv1 Mrxuqdo ri Odz dqg Hfrqrplfv 65= 58805;31

^8` Ehvhq/ V1P1 dqg Udvnlqg/ O1M1 +4<<4,1 Dq lqwurgxfwlrq wr wkh odz dqg
hfrqrplfv ri lqwhoohfwxdo surshuw|1 Mrxuqdo ri Hfrqrplf Shuvshfwlyhv 8=
605:1

^9` Exorz/ M1/ Jhdqdnrsorv/ M1 dqg Nohpshuhu/ S1 +4<;8,1 Pxowlpdunhw

roljrsro|= Vwudwhjlf vxevwlwxwhv dqg frpsohphqwv1 Mrxuqdo ri Srolwlfdo
Hfrqrp| <6= 7;;08441

63
 ^:` Fkhq/ \1 dqg Sqj/ L1 +5334,1 Vriwzduh sulflqj dqg frs|uljkw hq0
irufhphqw1 Plphr/ Qdwlrqdo Xqlyhuvlw| ri Vlqjdsruh1 Dydlodeoh dw
kwws=22zzz1frps1qxv1hgx1vj2lsqj2uhvhdufk2frs|blv41sgi

^;` Frqqhu/ N1U1 dqg Uxphow/ U1S1 +4<<4,1 Vriwzduh frs|lqj= Dq dqdo|vlv ri
surwhfwlrq vwudwhjlhv1 Pdqdjhphqw Vflhqfh 6:= 458046<1

^<` Gdvjxswd/ S1 dqg Pdvnlq/ H1 +4<;9,1 Wkh h{lvwhqfh ri htxloleulxp lq glv0

frqwlqxrxv hfrqrplf jdphv1 L= Wkhru|1 Uhylhz ri Hfrqrplf Vwxglhv 86=
40591

^43` Guë}h/ M1 +4<;3,1 Sxeolf jrrgv zlwk h{foxvlrq1 Mrxuqdo ri Sxeolf Hfrqrplfv
46= 480571

^44` Gxfkíqh/ D1 dqg Zdhoeurhfn/ S1 +5334,1 Zhoiduh lpsolfdwlrqv ri loohjdo

frslhv= wkh fdvh ri shhu0wr0shhu glvwulexwlrq whfkqrorjlhv1 Plphr/ FHUDV0
HQSF/ Sdulv1 Dydlodeoh dw kwws=22krphsdjhv1xoe1df1eh2szdhoeur2sdshu441sgi

^45` Jd|hu/ D1 dqg Vk|/ R1 +5334d,1 Frs|uljkw surwhfwlrq dqg

kdugzduh wd{dwlrq1 Plphr/ Xqlyhuvlw| ri Kdlid1 Dydlodeoh dw
kwws=22hfrq1kdlid1df1lo2r}vk|2frs|lqjwd{481sgi

^46` Jd|hu/ D1 dqg Vk|/ R1 +5334e,1 Lqwhuqhw/ shhu0wr0shhu/ dqg lqwhoohfwxdo

surshuw| lq pdunhwv iru gljlwdo surgxfwv1 Plphr/ Xqlyhuvlw| ri Kdlid1 Dydlo0
deoh dw kwws=22hfrq1kdlid1df1lo2r}vk|2iuhhzduh4;1sgi

^47` Kduedxjk/ U1 dqg Nkhpnd/ U1 +5334,1 Grhv frs|uljkw hqirufhphqw hq0

frxudjh frs|lqjB Plphr/ Foduhprqw PfNhqqd Froohjh1 Dydlodeoh dw
kwws=22hfrq1pfnhqqd1hgx2sdshuv253330471sgi

^48` Kxl/ N1O1/ Sqj/ L1/ dqg Fxl/ \1 +5334,1 Frs|lqj dqg wkh ohjlwlpdwh ghpdqg
iru uhfrughg pxvlf1 Plphr/ Qdwlrqdo Xqlyhuvlw| ri Vlqjdsruh1 Dydlodeoh dw
kwws=22zzz1frps1qxv1hgx1vj2lsqj2uhvhdufk2frs|lqjbwh{wb51sgi

^49` Mrkqvrq/ Z1U1 +4<;8,1 Wkh hfrqrplfv ri frs|lqj1 Mrxuqdo ri Srolwlfdo

Hfrqrp| <6= 48;04:71

^4:` Odqghv/ Z1P1 dqg Srvqhu/ U1D1 +4<;<,1 Dq hfrqrplf dqdo|vlv ri frs|uljkw
odz1 Mrxuqdo ri Ohjdo Vwxglhv 6;= 65806961

^4;` Olherzlw}/ V1M1 +4<;8,1 Frs|lqj dqg lqgluhfw dssursuldelolw|= Skrwrfrs|lqj

ri mrxuqdov1 Mrxuqdo ri Srolwlfdo Hfrqrp| <6= <780<8:1

^4<` Qryrv/ L1H1 dqg Zdogpdq/ P1 +4<;7,1 Wkh hhfwv ri lqfuhdvhg frs|uljkw
surwhfwlrq= Dq dqdo|wlfdo dssurdfk1 Mrxuqdo ri Srolwlfdo Hfrqrp| <5= 5690
5791

64
^53` Pxvvd/ P1/ dqg Urvhq/ V1 +4<:;,1 Prqrsro| dqg surgxfw txdolw|1 Mrxuqdo
ri Hfrqrplf Wkhru| 4;= 634064:1

^54` Sodqw/ D1 +4<67,1 Wkh hfrqrplf dvshfwv ri frs|uljkw lq errnv1 Hfrqrplfd

4= 49:04<81

^55` Vk|/ R1 dqg Wklvvh/ M10I1 +4<<<,1 D vwudwhjlf dssurdfk wr vriwzduh surwhf0
wlrq1 Mrxuqdo ri Hfrqrplfv dqg Pdqdjhphqw Vwudwhj| ;= 49604<31

^56` Wdnh|dpd/ O1Q1 +4<<7,1 Wkh zhoiduh lpsolfdwlrqv ri xqdxwkrul}hg uhsur0

gxfwlrq ri lqwhoohfwxdo surshuw| lq wkh suhvhqfh ri qhwzrun h{whuqdolwlhv1
Mrxuqdo ri Lqgxvwuldo Hfrqrplfv 95= 48804991

^57` Yduldq/ K1U1 +4<<;,1 Pdunhwv iru lqirupdwlrq jrrgv1

Plphr/ Xqlyhuvlw| ri Fdoliruqld/ Ehunhoh|1 Dydlodeoh dw
kwws=22zzz1vlpv1ehunhoh|1hgx2kdo2Sdshuv2mdsdq2mdsdq1sgi

^58` Zdww/ U1 +5333,1 Frs|uljkw dqg Hfrqrplf Wkhru|1 Iulhqgv ru IrhvB Hg0
zdug Hojdu Sxeolvklqj/ Fkhowhqkdp +XN, dqg Qruwkdpswrq +Pdvv1,1

^59` \rrq/ N1 +5334,1 Wkh rswlpdo ohyho ri frs|uljkw surwhfwlrq1

Plphr/ Ghsduwphqw ri Hfrqrplfv/ Nruhd Xqlyhuvlw|1 Dydlodeoh dw
kwws=22hfrq1nruhd1df1nu2nlkr2zrunv2fs5bglvw1sgi

65
 1

0.8

0.6
blockade
c
0.4

deter
0.2
accommodate
0 0.2 0.4 0.6 0.8 1
sc

Figure 1. Producer’s optimal strategy in the single-good model.

 1

0.8

0.6 No welfare impact

(blockaded piracy)
c
0.4
D1
Welfare
improvement
0.2
D2
A1 Welfare
deterioration A2 D3
A3
0 0.2 0.4 0.6 0.8 1
sc

Figure 2. Long-run welfare effects in the variable

copying cost model.
This working paper has been produced by
the Department of Economics at
Queen Mary, University of London

Copyright © 2002 Paul Bellflamme

All rights reserved.

Department of Economics
Queen Mary, University of London
Mile End Road
London E1 4NS
Tel: +44 (0)20 7882 5096 or Fax: +44 (0)20 8983 3580
Email: j.conner@qmul.ac.uk
Website: www.econ.qmul.ac.uk/papers/wp.htm