Academic literature on the topic 'Supplier negotiation'

How has the UK’s version of the EU General Data Protection Regulation (UK GDPR) and the Data Protection Act 2018 affected important aspects of software contract negotiation? Where do EU and UK laws now diverge in this field since Brexit and what effect does this have on software contracts? The Sixth Edition of this title provides answers to these questions, alongside updated negotiating principles and necessary licensing provisions. Readers have access to 32 downloadable precedents, ranging from professional services agreements to software licence agreements to shrink-wrap licences. Precedents and guidance are commercially focused to provide the reader with an opportunity to enhance negotiation skills via useful and practical tips. Providing an up to date analysis of a myriad of new e-commerce, data protection and related legislation and case law and sample contracts/precedents, this book allows legal professionals and business advisers to understand the full range of software contracts, from both the supplier and customer viewpoints. This title is included in Bloomsbury Professional's Intellectual Property and IT online service.

This paper focuses on the single-attribute negotiation between multi-MA (Manufacture Agent) and multi-MSA (Material Supplier Agent). A hierarchical-game based negotiation protocol is proposed. It is a three-layer game. Nash game is used to find the optimal trade partnership to maximize the whole profits of the SCN (Supplier Chain Network) in the first layer. The second layer games are aimed to find all possible coalitions if the order is out of the ability of MSA and determine the final coalitions of each MSA for each MA using cooperative games. The third layer games are used to determine the final strategies between MAs and MSAs or all possible coalitions found in the second layer games. Stackelberg equilibrium is introduced to resolve the conflict of interests of the two sides. The first layer game is based on the results of the second and third layer games. The second and third layer games are nested inside the first layer game. Simulations and analysis are provided to verify the effectiveness and feasibility of the proposed protocol.

Intense competition in industrial markets leads to constant changes in consumer behavior. Difficult pricing negotiations and abuse of power make it difficult for participants to interact in sales management. Taking these facts into account, it should be noted that for the sales manager, price becomes an indicator of success in the end result of negotiations. At the same time, surveys of heads of sales departments in the industrial sector show that, among other important elements of negotiations, are the duration of the business relationship, the reputation of the supplier. Despite these tendencies, questions remain about other factors that can consciously or unconsciously influence the negotiation situation, both in a positive and negative direction. The research results were carried out in accordance with the order of the Financial University under the Government of the Russian Federation of March 20, 2020 No. 0564 / o "On the organization of the implementation of the second stage of fundamental research works carried out within the framework of the state assignment in 2020." on the topic "Theory of consumer behavior in the modern economy".

Purpose – the purpose of the article is to examine how the extent of competition in the market affects the balance of bargaining powers of market participants. This often results in negative consequences for both buyers and suppliers. This study has important theoretical and practical implications. The authors made an analysis of existing theory and practice on negotiation strategies in a complex way, in accordance with levels of competition. Paper reveals the opportunities to develop and implement these strategies, taking into account market definition options. Research methodology – the paper examines the application of Nash equilibrium to the preparation of negotiation strategies, looking at the function for the best result. The study would help to prepare business strategies for different competition levels. Findings – the ways of preparation of negotiation strategies with different levels of competition, focusing on market definition opportunities. Research limitations – there are not enough measures in international business negotiation theory helping to develop negotiation strategies in the face of distorted market competition and difficulties to define the market. Practical implications – findings of the article will give opportunities for policymakers to develop and implement strategies for business negotiations. Originality – the article consists presentation of new tools for negotiators in preparing negotiating strategies.

Abstract The paper wants to improve the procurement processes for custom-made machineries and components. Indeed, the current methods and software platforms adopted by industries for purchasing machineries do not consider value generated through the entire lifecycle. Furthermore, the purchasing process of custom-made components from external suppliers is often and still characterized by several negotiation activities. This paper wants to improve this context by proposing two approaches to fostering the procurement processes. The first objective is to define an approach for standardizing the method for configuring machineries to be supplied from suppliers and to establish an approach for estimating their costs. The most important benefits of such an approach consist of (i) machinery selection based on the Total Value of Ownership (TVO), and (ii) optimized suppliers’ selection by strengthening relationships between customers and suppliers. The second objective is to define a method and a software platform for managing the procurement phase of custom-made components. The most important benefits of this approach consist of (i) the standardization of procurement policies for custom and standard components, and (ii) the faster budgeting process. Future work consists of defining a reference model for gathering primary data required for TVO computation and defining standard agreements between suppliers and customers.

As an educational innovation, Gamification is a process where the teachinglearning process integrates the principles of playfulness and games, motivating participation in a safe environment that permits mistakes without consequences. As a professional professors it was detected that the students assume, under the managerial concept, that as leaders, they are the ones who should give the orders, are responsible for the project, and in charge of others. With gamification, it is intended that they understand that as leaders, they form networks of teams with mutual interests (Draft and Lane, 2018). This raises the following question: Could gamification be the innovation that ensures students develop leadership skills and collaborative work? During the August-December semester of 2020, the game named ´Ñu da meya was designed and implemented where students taking two courses with little similarity helped each other in a fictitious customer-supplier working relationship where each student played a role to reach a common goal. The role play consists of one Fun Quest and five stages: Preparation, Brief, Script, Negotiation and the Master stage. Through the game 'Ñu da meya, the students acquired knowledge through active learning. They developed the necessary leadership that allowed them to take the initiative in any field, challenge paradigms, and make things happen, ethically. This document shows how through gamification the students develop some competences and discover the value of leadership and collaborative work in realistic scenarios, where each of the participants played a role contributing to collaborative work, problem-solving, leadership, communication and decisionmaking in a shared environment of commitment. The importance of this project is understanding what makes teamwork efficient at the university level and for students’ discovering the value of leadership and collaborative work and how to exercise them. This project demonstrates the tangible benefits of collaboration between different schools to perform multidisciplinary work. Keywords: Digital Era, Innovative Practices, Gamification, Leadership, Teamwork, Interdisciplinary

Explicit modeling of tariff rate quotas (TRQs) is important in the current World Trade Organization negotiations. In order to do such modeling with GTAP, extra data is required and extra equations must be added to the model. This paper provides tools for assisting modelers to carry out explicit modeling of bilateral tariff rate quotas in GTAP using GEMPACK. The paper describes how the extra data for sugar TRQ applications was obtained and reconciled with the standard GTAP data. Supplied with the paper is a TABLO Input file TRQDATA.TAB which others can use for reconciling their TRQ data with the usual GTAP data. Supplied with the paper is a module which can be added to the standard TABLO Input files for GTAP. This module contains the extra equations required to model TRQs. Detailed hands-on examples are supplied with the paper, as is a TRQ application relating to a partial liberalization of sugar TRQ. Readers of the paper can replicate these applications. A windows interface TRQmate is supplied with the paper. This is a relatively general-purpose interface which automates the steps in carrying out TRQ applications with GTAP and GEMPACK. If you wish to carry out your own bilateral TRQ applications with GTAP and GEMPACK, the tools supplied with this paper will make it relatively straightforward for you to do so once you have collected the extra data you need.

With the proliferation of Free Trade Agreements (FTAs) over the past decade, demand for quantitative analysis of their likely impacts has surged. The main quantitative tool for performing such analysis is Computable General Equilibrium (CGE) modeling. Yet these models have been widely criticized for performing poorly (Kehoe, 2002) and having weak econometric foundations (McKitrick, 1998; Jorgenson, 1984). FTA results have been shown to be particularly sensitive to the trade elasticities, with small trade elasticities generating large terms of trade effects and relatively modest efficiency gains, whereas large trade elasticities lead to the opposite result. Critics are understandably wary of results being determined largely by the authors’ choice of trade elasticities. Where do these trade elasticities come from? CGE modelers typically draw these elasticities from econometric work that uses time series price variation to identify an elasticity of substitution between domestic goods and composite imports (Alaouze, 1977; Alaouze, et al., 1977; Stern et al., 1976; Gallaway, McDaniel and Rivera, 2003). This approach has three problems: the use of point estimates as “truth”, the magnitude of the point estimates, and estimating the relevant elasticity. First, modelers take point estimates drawn from the econometric literature, while ignoring the precision of these estimates. As we will make clear below, the confidence one has in various CGE conclusions depends critically on the size of the confidence interval around parameter estimates. Standard “robustness checks” such as systematically raising or lowering the substitution parameters does not properly address this problem because it ignores information about which parameters we know with some precision and which we do not. A second problem with most existing studies derives from the use of import price series to identify home vs. foreign substitution, for example, tends to systematically understate the true elasticity. This is because these estimates take price variation as exogenous when estimating the import demand functions, and ignore quality variation. When quality is high, import demand and prices will be jointly high. This biases estimated elasticities toward zero. A related point is that the fixed-weight import price series used by most authors are theoretically inappropriate for estimating the elasticities of interest. CGE modelers generally examine a nested utility structure, with domestic production substitution for a CES composite import bundle. The appropriate price series is then the corresponding CES price index among foreign varieties. Constructing such an index requires knowledge of the elasticity of substitution among foreign varieties (see below). By using a fixed-weight import price series, previous estimates place too much weight on high foreign prices, and too small a weight on low foreign prices. In other words, they overstate the degree of price variation that exists, relative to a CES price index. Reconciling small trade volume movements with large import price series movements requires a small elasticity of substitution. This problem, and that of unmeasured quality variation, helps explain why typical estimated elasticities are very small. The third problem with the existing literature is that estimates taken from other researchers’ studies typically employ different levels of aggregation, and exploit different sources of price variation, from what policy modelers have in mind. Employment of elasticities in experiments ill-matched to their original estimation can be problematic. For example, estimates may be calculated at a higher or lower level of aggregation than the level of analysis than the modeler wants to examine. Estimating substitutability across sources for paddy rice gives one a quite different answer than estimates that look at agriculture as a whole. When analyzing Free Trade Agreements, the principle policy experiment is a change in relative prices among foreign suppliers caused by lowering tariffs within the FTA. Understanding the substitution this will induce across those suppliers is critical to gauging the FTA’s real effects. Using home v. foreign elasticities rather than elasticities of substitution among imports supplied from different countries may be quite misleading. Moreover, these “sourcing” elasticities are critical for constructing composite import price series to appropriate estimate home v. foreign substitutability. In summary, the history of estimating the substitution elasticities governing trade flows in CGE models has been checkered at best. Clearly there is a need for improved econometric estimation of these trade elasticities that is well-integrated into the CGE modeling framework. This paper provides such estimation and integration, and has several significant merits. First, we choose our experiment carefully. Our CGE analysis focuses on the prospective Free Trade Agreement of the Americas (FTAA) currently under negotiation. This is one of the most important FTAs currently “in play” in international negotiations. It also fits nicely with the source data used to estimate the trade elasticities, which is largely based on imports into North and South America. Our assessment is done in a perfectly competitive, comparative static setting in order to emphasize the role of the trade elasticities in determining the conventional gains/losses from such an FTA. This type of model is still widely used by government agencies for the evaluation of such agreements. Extensions to incorporate imperfect competition are straightforward, but involve the introduction of additional parameters (markups, extent of unexploited scale economies) as well as structural assumptions (entry/no-entry, nature of inter-firm rivalry) that introduce further uncertainty. Since our focus is on the effects of a PTA we estimate elasticities of substitution across multiple foreign supply sources. We do not use cross-exporter variation in prices or tariffs alone. Exporter price series exhibit a high degree of multicolinearity, and in any case, would be subject to unmeasured quality variation as described previously. Similarly, tariff variation by itself is typically unhelpful because by their very nature, Most Favored Nation (MFN) tariffs are non-discriminatory in nature, affecting all suppliers in the same way. Tariff preferences, where they exist, are often difficult to measure – sometimes being confounded by quantitative barriers, restrictive rules of origin, and other restrictions. Instead we employ a unique methodology and data set drawing on not only tariffs, but also bilateral transportation costs for goods traded internationally (Hummels, 1999). Transportation costs vary much more widely than do tariffs, allowing much more precise estimation of the trade elasticities that are central to CGE analysis of FTAs. We have highly disaggregated commodity trade flow data, and are therefore able to provide estimates that precisely match the commodity aggregation scheme employed in the subsequent CGE model. We follow the GTAP Version 5.0 aggregation scheme which includes 42 merchandise trade commodities covering food products, natural resources and manufactured goods. With the exception of two primary commodities that are not traded, we are able to estimate trade elasticities for all merchandise commodities that are significantly different form zero at the 95% confidence level. Rather than producing point estimates of the resulting welfare, export and employment effects, we report confidence intervals instead. These are based on repeated solution of the model, drawing from a distribution of trade elasticity estimates constructed based on the econometrically estimated standard errors. There is now a long history of CGE studies based on SSA: Systematic Sensitivity Analysis (Harrison and Vinod, 1992; Wigle, 1991; Pagon and Shannon, 1987) Ho

The World Summit on Sustainable Development in Johannesburg in 2002 set the goal of minimising the adverse impacts of chemicals and waste by 2020. This goal has not been achieved yet. Therefore, other approaches are needed to prevent, minimise, or replace harmful substances. One possible approach is this master thesis which deals with the challenges that the textile importer DELTEX is facing with regard to a transparent communication of chemicals used and contained in the product in its supply chain. DELTEX is bound by legal regulations and requirements of its customer and must ensure that there are no harmful substances in the garments. For each order, the customer requires a chemical inventory from DELTEX which contains the chemical substances and formulations used (so-called "order-wise chemical inventory"). Currently, the suppliers are not willing to pass this on to DELTEX. As a result, DELTEX is faced with the problem of having no knowledge of the materials used in the garments and is thus taking a high risk. The structure of this study is based on the transdisciplinary "delta analysis" of the Society for Institutional Analysis at the University of Applied Sciences Darmstadt. This compares the target state with the actual state and derives a delta from the difference. Based on this, suitable design options are to be developed to close the delta. The study defines the target state on the basis of normative requirements and derives three criteria from this, which can be used to measure design options. By means of guideline-based interviews with experts, an online survey and literature research, it examines the current state. The analysis shows that the relevant actors are in an unfavourable incentive and barrier situation. The textile supply chain can be seen as a complex construct in which a whole series of production sites (often in developing and emerging countries where corruption and low environmental standards exist) carry out many processing steps. Chemicals are used at almost all stages of processing, some of which have harmful effects on people and the environment. At the same time, factory workers in the production countries are under enormous price and time pressure and often have insufficient know-how about chemical processes. DELTEX is dependent on its main customer and therefore has little room for price negotiations. To close this delta, the study formulates design options on macro, meso and micro levels and measures them against the developed criteria. None of the measures completely meets all the criteria, which is why a residual delta remains. The study concludes that not one, but rather a combination of several design options at all levels can achieve the target state. For DELTEX, an alliance with other textile importers, membership in the Fair Wear Foundation, strengthening the relationship with its suppliers and cooperation with another customer are recommended. Furthermore, the use of material data tools that support proactive reporting approaches such as a Full Material Declaration is recommended. The study is carried out from the perspective of the textile importer DELTEX. The results can therefore only be applied to the entire textile supply chain to a limited extent.

Executive Summary This report describes a series of experiments carried out by PRICE Lab, a research programme at the Economic and Social Research Institute (ESRI) jointly funded by the Central Bank of Ireland, the Commission for Energy Regulation, the Competition and Consumer Protection Commission and the Commission for Communications Regulation. The experiments were conducted with samples of Irish consumers aged 18-70 years and were designed to answer the following general research question: At what point do products become too complex for consumers to choose accurately between the good ones and the bad ones? BACKGROUND AND METHODS PRICE Lab represents a departure from traditional methods employed for economic research in Ireland. It belongs to the rapidly expanding area of ‘behavioural economics’, which is the application of psychological insights to economic analysis. In recent years, behavioural economics has developed novel methods and generated many new findings, especially in relation to the choices made by consumers. These scientific advances have implications both for economics and for policy. They suggest that consumers often do not make decisions in the way that economists have traditionally assumed. The findings show that consumers have limited capacity for attending to and processing information and that they are prone to systematic biases, all of which may lead to disadvantageous choices. In short, consumers may make costly mistakes. Research has indeed documented that in several key consumer markets, including financial services, utilities and telecommunications, many consumers struggle to choose the best products for themselves. It is often argued that these markets involve ‘complex’ products. The obvious question that arises is whether consumer policy can be used to help them to make better choices when faced with complex products. Policies are more likely to be successful where they are informed by an accurate understanding of how real consumers make decisions between products. To provide evidence for consumer policy, PRICE Lab has developed a method for measuring the accuracy with which consumers make choices, using techniques adapted from the scientific study of human perception. The method allows researchers to measure how reliably consumers can distinguish a good deal from a bad one. A good deal is defined here as one where the product is more valuable than the price paid. In other words, it offers good value for money or, in the jargon of economics, offers the consumer a ‘surplus’. Conversely, a bad deal offers poor value for money, providing no (or a negative) surplus. PRICE Lab’s main experimental method, which we call the ‘Surplus Identification’ (S-ID) task, allows researchers to measure how accurately consumers can spot a surplus and whether they are prone to systematic biases. Most importantly, the S-ID task can be used to study how the accuracy of consumers’ decisions changes as the type of product changes. For the experiments we report here, samples of consumers arrived at the ESRI one at a time and spent approximately one hour doing the S-ID task with different kinds of products, which were displayed on a computer screen. They had to learn to judge the value of one or more products against prices and were then tested for accuracy. As well as people’s intrinsic motivation to do well when their performance on a task like this is tested, we provided an incentive: one in every ten consumers who attended PRICE Lab won a prize, based on their performance. Across a series of these experiments, we were able to test how the accuracy of consumers’ decisions was affected by the number and nature of the product’s characteristics, or ‘attributes’, which they had to take into account in order to distinguish good deals from bad ones. In other words, we were able to study what exactly makes for a ‘complex’ product, in the sense that consumers find it difficult to choose good deals. FINDINGS Overall, across all ten experiments described in this report, we found that consumers’ judgements of the value of products against prices were surprisingly inaccurate. Even when the product was simple, meaning that it consisted of just one clearly perceptible attribute (e.g. the product was worth more when it was larger), consumers required a surplus of around 16-26 per cent of the total price range in order to be able to judge accurately that a deal was a good one rather than a bad one. Put another way, when most people have to map a characteristic of a product onto a range of prices, they are able to distinguish at best between five and seven levels of value (e.g. five levels might be thought of as equivalent to ‘very bad’, ‘bad’, ‘average’, ‘good’, ‘very good’). Furthermore, we found that judgements of products against prices were not only imprecise, but systematically biased. Consumers generally overestimated what products at the top end of the range were worth and underestimated what products at the bottom end of the range were worth, typically by as much as 10-15 per cent and sometimes more. We then systematically increased the complexity of the products, first by adding more attributes, so that the consumers had to take into account, two, three, then four different characteristics of the product simultaneously. One product might be good on attribute A, not so good on attribute B and available at just above the xii | PRICE Lab: An Investigation of Consumers’ Capabilities with Complex Products average price; another might be very good on A, middling on B, but relatively expensive. Each time the consumer’s task was to judge whether the deal was good or bad. We would then add complexity by introducing attribute C, then attribute D, and so on. Thus, consumers had to negotiate multiple trade-offs. Performance deteriorated quite rapidly once multiple attributes were in play. Even the best performers could not integrate all of the product information efficiently – they became substantially more likely to make mistakes. Once people had to consider four product characteristics simultaneously, all of which contributed equally to the monetary value of the product, a surplus of more than half the price range was required for them to identify a good deal reliably. This was a fundamental finding of the present experiments: once consumers had to take into account more than two or three different factors simultaneously their ability to distinguish good and bad deals became strikingly imprecise. This finding therefore offered a clear answer to our primary research question: a product might be considered ‘complex’ once consumers must take into account more than two or three factors simultaneously in order to judge whether a deal is good or bad. Most of the experiments conducted after we obtained these strong initial findings were designed to test whether consumers could improve on this level of performance, perhaps for certain types of products or with sufficient practice, or whether the performance limits uncovered were likely to apply across many different types of product. An examination of individual differences revealed that some people were significantly better than others at judging good deals from bad ones. However the differences were not large in comparison to the overall effects recorded; everyone tested struggled once there were more than two or three product attributes to contend with. People with high levels of numeracy and educational attainment performed slightly better than those without, but the improvement was small. We also found that both the high level of imprecision and systematic bias were not reduced substantially by giving people substantial practice and opportunities to learn – any improvements were slow and incremental. A series of experiments was also designed to test whether consumers’ capability was different depending on the type of product attribute. In our initial experiments the characteristics of the products were all visual (e.g., size, fineness of texture, etc.). We then performed similar experiments where the relevant product information was supplied as numbers (e.g., percentages, amounts) or in categories (e.g., Type A, Rating D, Brand X), to see whether performance might improve. This question is important, as most financial and contractual information is supplied to consumers in a numeric or categorical form. The results showed clearly that the type of product information did not matter for the level of imprecision and bias in consumers’ decisions – the results were essentially the same whether the product attributes were visual, numeric or categorical. What continued to drive performance was how many characteristics the consumer had to judge simultaneously. Thus, our findings were not the result of people failing to perceive or take in information accurately. Rather, the limiting factor in consumers’ capability was how many different factors they had to weigh against each other at the same time. In most of our experiments the characteristics of the product and its monetary value were related by a one-to-one mapping; each extra unit of an attribute added the same amount of monetary value. In other words, the relationships were all linear. Because other findings in behavioural economics suggest that consumers might struggle more with non-linear relationships, we designed experiments to test them. For example, the monetary value of a product might increase more when the amount of one attribute moves from very low to low, than when it moves from high to very high. We found that this made no difference to either the imprecision or bias in consumers’ decisions provided that the relationship was monotonic (i.e. the direction of the relationship was consistent, so that more or less of the attribute always meant more or less monetary value respectively). When the relationship involved a turning point (i.e. more of the attribute meant higher monetary value but only up to a certain point, after which more of the attribute meant less value) consumers’ judgements were more imprecise still. Finally, we tested whether familiarity with the type of product improved performance. In most of the experiments we intentionally used products that were new to the experimental participants. This was done to ensure experimental control and so that we could monitor learning. In the final experiment reported here, we used two familiar products (Dublin houses and residential broadband packages) and tested whether consumers could distinguish good deals from bad deals any better among these familiar products than they could among products that they had never seen before, but which had the same number and type of attributes and price range. We found that consumers’ performance was the same for these familiar products as for unfamiliar ones. Again, what primarily determined the amount of imprecision and bias in consumers’ judgments was the number of attributes that they had to balance against each other, regardless of whether these were familiar or novel. POLICY IMPLICATIONS There is a menu of consumer polices designed to assist consumers in negotiating complex products. A review, including international examples, is given in the main body of the report. The primary aim is often to simplify the consumer’s task. Potential policies, versions of which already exist in various forms and which cover a spectrum of interventionist strength, might include: the provision and endorsement of independent, transparent price comparison websites and other choice engines (e.g. mobile applications, decision software); the provision of high quality independent consumer advice; ‘mandated simplification’, whereby regulations stipulate that providers must present product information in a simplified and standardised format specifically determined by regulation; and more strident interventions such as devising and enforcing prescriptive rules and regulations in relation to permissible product descriptions, product features or price structures. The present findings have implications for such policies. However, while the experimental findings have implications for policy, it needs to be borne in mind that the evidence supplied here is only one factor in determining whether any given intervention in markets is likely to be beneficial. The findings imply that consumers are likely to struggle to choose well in markets with products consisting of multiple important attributes that must all be factored in when making a choice. Interventions that reduce this kind of complexity for consumers may therefore be beneficial, but nothing in the present research addresses the potential costs of such interventions, or how providers are likely to respond to them. The findings are also general in nature and are intended to give insights into consumer choices across markets. There are likely to be additional factors specific to certain markets that need to be considered in any analysis of the costs and benefits of a potential policy change. Most importantly, the policy implications discussed here are not specific to Ireland or to any particular product market. Furthermore, they should not be read as criticisms of existing regulatory regimes, which already go to some lengths in assisting consumers to deal with complex products. Ireland currently has extensive regulations designed to protect consumers, both in general and in specific markets, descriptions of which can be found in Section 9.1 of the main report. Nevertheless, the experiments described here do offer relevant guidance for future policy designs. For instance, they imply that while policies that make it easier for consumers to switch providers may be necessary to encourage active consumers, they may not be sufficient, especially in markets where products are complex. In order for consumers to benefit, policies that help them to identify better deals reliably may also be required, given the scale of inaccuracy in consumers’ decisions that we record in this report when products have multiple important attributes. Where policies are designed to assist consumer decisions, the present findings imply quite severe limits in relation to the volume of information consumers can simultaneously take into account. Good impartial Executive Summary | xv consumer advice may limit the volume of information and focus on ensuring that the most important product attributes are recognised by consumers. The findings also have implications for the role of competition. While consumers may obtain substantial potential benefits from competition, their capabilities when faced with more complex products are likely to reduce such benefits. Pressure from competition requires sufficient numbers of consumers to spot and exploit better value offerings. Given our results, providers with larger market shares may face incentives to increase the complexity of products in an effort to dampen competitive pressure and generate more market power. Where marketing or pricing practices result in prices or attributes with multiple components, our findings imply that consumer choices are likely to become less accurate. Policymakers must of course be careful in determining whether such practices amount to legitimate innovations with potential consumer benefit. Yet there is a genuine danger that spurious complexity can be generated that confuses consumers and protects market power. The results described here provide backing for the promotion and/or provision by policymakers of high-quality independent choice engines, including but not limited to price comparison sites, especially in circumstances where the number of relevant product attributes is high. A longer discussion of the potential benefits and caveats associated with such policies is contained in the main body of the report. Mandated simplification policies are gaining in popularity internationally. Examples include limiting the number of tariffs a single energy company can offer or standardising health insurance products, both of which are designed to simplify the comparisons between prices and/or product attributes. The present research has some implications for what might make a good mandate. Consumer decisions are likely to be improved where a mandate brings to the consumer’s attention the most important product attributes at the point of decision. The present results offer guidance with respect to how many key attributes consumers are able simultaneously to trade off, with implications for the design of standardised disclosures. While bearing in mind the potential for imposing costs, the results also suggest benefits to compulsory ‘meta-attributes’ (such as APRs, energy ratings, total costs, etc.), which may help consumers to integrate otherwise separate sources of information. FUTURE RESEARCH The experiments described here were designed to produce findings that generalise across multiple product markets. However, in addition to the results outlined in this report, the work has resulted in new experimental methods that can be applied to more specific consumer policy issues. This is possible because the methods generate experimental measures of the accuracy of consumers’ decision-making. As such, they can be adapted to assess the quality of consumers’ decisions in relation to specific products, pricing and marketing practices. Work is underway in PRICE Lab that applies these methods to issues in specific markets, including those for personal loans, energy and mobile phones.

Banco de la República is celebrating its 100th anniversary in 2023. This is a very significant anniversary and one that provides an opportunity to highlight the contribution the Bank has made to the country’s development. Its track record as guarantor of monetary stability has established it as the one independent state institution that generates the greatest confidence among Colombians due to its transparency, management capabilities, and effective compliance with the central banking and cultural responsibilities entrusted to it by the Constitution and the Law. On a date as important as this, the Board of Directors of Banco de la República (BDBR) pays tribute to the generations of governors and officers whose commitment and dedication have contributed to the growth of this institution.1 Banco de la República’s mandate was confirmed in the National Constitutional Assembly of 1991 where the citizens had the opportunity to elect the seventy people who would have the task of drafting a new constitution. The leaders of the three political movements with the most votes were elected as chairs to the Assembly, and this tripartite presidency reflected the plurality and the need for consensus among the different political groups to move the reform forward. Among the issues considered, the National Constitutional Assembly gave special importance to monetary stability. That is why they decided to include central banking and to provide Banco de la República with the necessary autonomy to use the instruments for which they are responsible without interference from other authorities. The constituent members understood that ensuring price stability is a state duty and that the entity responsible for this task must be enshrined in the Constitution and have the technical capability and institutional autonomy necessary to adopt the decisions they deem appropriate to achieve this fundamental objective in coordination with the general economic policy. In particular, Article 373 established that “the State, through Banco de la República, shall ensure the maintenance of the purchasing power of the currency,” a provision that coincided with the central banking system adopted by countries that have been successful in controlling inflation. In 1999, in Ruling 481, the Constitutional Court stated that “the duty to maintain the purchasing power of the currency applies to not only the monetary, credit, and exchange authority, i.e., the Board of Banco de la República, but also those who have responsibilities in the formulation and implementation of the general economic policy of the country” and that “the basic constitutional purpose of Banco de la República is the protection of a sound currency. However, this authority must take the other economic objectives of state intervention such as full employment into consideration in their decisions since these functions must be coordinated with the general economic policy.” The reforms to Banco de la República agreed upon in the Constitutional Assembly of 1991 and in Act 31/1992 can be summarized in the following aspects: i) the Bank was assigned a specific mandate: to maintain the purchasing power of the currency in coordination with the general economic policy; ii) the BDBR was designatedas the monetary, foreign exchange, and credit authority; iii) the Bank and its Board of Directors were granted a significant degree of independence from the government; iv) the Bank was prohibited from granting credit to the private sector except in the case of the financial sector; v) established that in order to grant credit to the government, the unanimous vote of its Board of Directors was required except in the case of open market transactions; vi) determined that the legislature may, in no case, order credit quotas in favor of the State or individuals; vii) Congress was appointed, on behalf of society, as the main addressee of the Bank’s reporting exercise; and viii) the responsibility for inspection, surveillance, and control over Banco de la República was delegated to the President of the Republic. The members of the National Constitutional Assembly clearly understood that the benefits of low and stable inflation extend to the whole of society and contribute mto the smooth functioning of the economic system. Among the most important of these is that low inflation promotes the efficient use of productive resources by allowing relative prices to better guide the allocation of resources since this promotes economic growth and increases the welfare of the population. Likewise, low inflation reduces uncertainty about the expected return on investment and future asset prices. This increases the confidence of economic agents, facilitates long-term financing, and stimulates investment. Since the low-income population is unable to protect itself from inflation by diversifying its assets, and a high proportion of its income is concentrated in the purchase of food and other basic goods that are generally the most affected by inflationary shocks, low inflation avoids arbitrary redistribution of income and wealth.2 Moreover, low inflation facilitates wage negotiations, creates a good labor climate, and reduces the volatility of employment levels. Finally, low inflation helps to make the tax system more transparent and equitable by avoiding the distortions that inflation introduces into the value of assets and income that make up the tax base. From the monetary authority’s point of view, one of the most relevant benefits of low inflation is the credibility that economic agents acquire in inflation targeting, which turns it into an effective nominal anchor on price levels. Upon receiving its mandate, and using its autonomy, Banco de la República began to announce specific annual inflation targets as of 1992. Although the proposed inflation targets were not met precisely during this first stage, a downward trend in inflation was achieved that took it from 32.4% in 1990 to 16.7% in 1998. At that time, the exchange rate was kept within a band. This limited the effectiveness of monetary policy, which simultaneously sought to meet an inflation target and an exchange rate target. The Asian crisis spread to emerging economies and significantly affected the Colombian economy. The exchange rate came under strong pressure to depreciate as access to foreign financing was cut off under conditions of a high foreign imbalance. This, together with the lack of exchange rate flexibility, prevented a countercyclical monetary policy and led to a 4.2% contraction in GDP that year. In this context of economic slowdown, annual inflation fell to 9.2% at the end of 1999, thus falling below the 15% target set for that year. This episode fully revealed how costly it could be, in terms of economic activity, to have inflation and exchange rate targets simultaneously. Towards the end of 1999, Banco de la República announced the adoption of a new monetary policy regime called the Inflation Targeting Plan. This regime, known internationally as ‘Inflation Targeting,’ has been gaining increasing acceptance in developed countries, having been adopted in 1991 by New Zealand, Canada, and England, among others, and has achieved significant advances in the management of inflation without incurring costs in terms of economic activity. In Latin America, Brazil and Chile also adopted it in 1999. In the case of Colombia, the last remaining requirement to be fulfilled in order to adopt said policy was exchange rate flexibility. This was realized around September 1999, when the BDBR decided to abandon the exchange-rate bands to allow the exchange rate to be freely determined in the market.Consistent with the constitutional mandate, the fundamental objective of this new policy approach was “the achievement of an inflation target that contributes to maintaining output growth around its potential.”3 This potential capacity was understood as the GDP growth that the economy can obtain if it fully utilizes its productive resources. To meet this objective, monetary policy must of necessity play a countercyclical role in the economy. This is because when economic activity is below its potential and there are idle resources, the monetary authority can reduce the interest rate in the absence of inflationary pressure to stimulate the economy and, when output exceeds its potential capacity, raise it. This policy principle, which is immersed in the models for guiding the monetary policy stance, makes the following two objectives fully compatible in the medium term: meeting the inflation target and achieving a level of economic activity that is consistent with its productive capacity. To achieve this purpose, the inflation targeting system uses the money market interest rate (at which the central bank supplies primary liquidity to commercial banks) as the primary policy instrument. This replaced the quantity of money as an intermediate monetary policy target that Banco de la República, like several other central banks, had used for a long time. In the case of Colombia, the objective of the new monetary policy approach implied, in practical terms, that the recovery of the economy after the 1999 contraction should be achieved while complying with the decreasing inflation targets established by the BDBR. The accomplishment of this purpose was remarkable. In the first half of the first decade of the 2000s, economic activity recovered significantly and reached a growth rate of 6.8% in 2006. Meanwhile, inflation gradually declined in line with inflation targets. That was how the inflation rate went from 9.2% in 1999 to 4.5% in 2006, thus meeting the inflation target established for that year while GDP reached its potential level. After this balance was achieved in 2006, inflation rebounded to 5.7% in 2007, above the 4.0% target for that year due to the fact that the 7.5% GDP growth exceeded the potential capacity of the economy.4 After proving the effectiveness of the inflation targeting system in its first years of operation, this policy regime continued to consolidate as the BDBR and the technical staff gained experience in its management and state-of-the-art economic models were incorporated to diagnose the present and future state of the economy and to assess the persistence of inflation deviations and expectations with respect to the inflation target. Beginning in 2010, the BDBR established the long-term 3.0% annual inflation target, which remains in effect today. Lower inflation has contributed to making the macroeconomic environment more stable, and this has favored sustained economic growth, financial stability, capital market development, and the functioning of payment systems. As a result, reductions in the inflationary risk premia and lower TES and credit interest rates were achieved. At the same time, the duration of public domestic debt increased significantly going from 2.27 years in December 2002 to 5.86 years in December 2022, and financial deepening, measured as the level of the portfolio as a percentage of GDP, went from around 20% in the mid-1990s to values above 45% in recent years in a healthy context for credit institutions.Having been granted autonomy by the Constitution to fulfill the mandate of preserving the purchasing power of the currency, the tangible achievements made by Banco de la República in managing inflation together with the significant benefits derived from the process of bringing inflation to its long-term target, make the BDBR’s current challenge to return inflation to the 3.0% target even more demanding and pressing. As is well known, starting in 2021, and especially in 2022, inflation in Colombia once again became a serious economic problem with high welfare costs. The inflationary phenomenon has not been exclusive to Colombia and many other developed and emerging countries have seen their inflation rates move away from the targets proposed by their central banks.5 The reasons for this phenomenon have been analyzed in recent Reports to Congress, and this new edition delves deeper into the subject with updated information. The solid institutional and technical base that supports the inflation targeting approach under which the monetary policy strategy operates gives the BDBR the necessary elements to face this difficult challenge with confidence. In this regard, the BDBR reiterated its commitment to the 3.0% inflation target in its November 25 communiqué and expects it to be reached by the end of 2024.6 Monetary policy will continue to focus on meeting this objective while ensuring the sustainability of economic activity, as mandated by the Constitution. Analyst surveys done in March showed a significant increase (from 32.3% in January to 48.5% in March) in the percentage of responses placing inflation expectations two years or more ahead in a range between 3.0% and 4.0%. This is a clear indication of the recovery of credibility in the medium-term inflation target and is consistent with the BDBR’s announcement made in November 2022. The moderation of the upward trend in inflation seen in January, and especially in February, will help to reinforce this revision of inflation expectations and will help to meet the proposed targets. After reaching 5.6% at the end of 2021, inflation maintained an upward trend throughout 2022 due to inflationary pressures from both external sources, associated with the aftermath of the pandemic and the consequences of the war in Ukraine, and domestic sources, resulting from: strengthening of local demand; price indexation processes stimulated by the increase in inflation expectations; the impact on food production caused by the mid-2021 strike; and the pass-through of depreciation to prices. The 10% increase in the minimum wage in 2021 and the 16% increase in 2022, both of which exceeded the actual inflation and the increase in productivity, accentuated the indexation processes by establishing a high nominal adjustment benchmark. Thus, total inflation went to 13.1% by the end of 2022. The annual change in food prices, which went from 17.2% to 27.8% between those two years, was the most influential factor in the surge in the Consumer Price Index (CPI). Another segment that contributed significantly to price increases was regulated products, which saw the annual change go from 7.1% in December 2021 to 11.8% by the end of 2022. The measure of core inflation excluding food and regulated items, in turn, went from 2.5% to 9.5% between the end of 2021 and the end of 2022. The substantial increase in core inflation shows that inflationary pressure has spread to most of the items in the household basket, which is characteristic of inflationary processes with generalized price indexation as is the case in Colombia. Monetary policy began to react early to this inflationary pressure. Thus, starting with its September 2021 session, the BDBR began a progressive change in the monetary policy stance moving away from the historical low of a 1.75% policy rate that had intended to stimulate the recovery of the economy. This adjustment process continued without interruption throughout 2022 and into the beginning of 2023 when the monetary policy rate reached 12.75% last January, thus accumulating an increase of 11 percentage points (pp). The public and the markets have been surprised that inflation continued to rise despite significant interest rate increases. However, as the BDBR has explained in its various communiqués, monetary policy works with a lag. Just as in 2022 economic activity recovered to a level above the pre-pandemic level, driven, along with other factors, by the monetary stimulus granted during the pandemic period and subsequent months, so too the effects of the current restrictive monetary policy will gradually take effect. This will allow us to expect the inflation rate to converge to 3.0% by the end of 2024 as is the BDBR’s purpose.Inflation results for January and February of this year showed declining marginal increases (13 bp and 3 bp respectively) compared to the change seen in December (59 bp). This suggests that a turning point in the inflation trend is approaching. In other Latin American countries such as Chile, Brazil, Perú, and Mexico, inflation has peaked and has begun to decline slowly, albeit with some ups and downs. It is to be expected that a similar process will take place in Colombia in the coming months. The expected decline in inflation in 2023 will be due, along with other factors, to lower cost pressure from abroad as a result of the gradual normalization of supply chains, the overcoming of supply shocks caused by the weather, and road blockades in previous years. This will be reflected in lower adjustments in food prices, as has already been seen in the first two months of the year and, of course, the lagged effect of monetary policy. The process of inflation convergence to the target will be gradual and will extend beyond 2023. This process will be facilitated if devaluation pressure is reversed. To this end, it is essential to continue consolidating fiscal sustainability and avoid messages on different public policy fronts that generate uncertainty and distrust. 1 This Report to Congress includes Box 1, which summarizes the trajectory of Banco de la República over the past 100 years. In addition, under the Bank’s auspices, several books that delve into various aspects of the history of this institution have been published in recent years. See, for example: Historia del Banco de la República 1923-2015; Tres banqueros centrales; Junta Directiva del Banco de la República: grandes episodios en 30 años de historia; Banco de la República: 90 años de la banca central en Colombia. 2 This is why lower inflation has been reflected in a reduction of income inequality as measured by the Gini coefficient that went from 58.7 in 1998 to 51.3 in the year prior to the pandemic. 3 See Gómez Javier, Uribe José Darío, Vargas Hernando (2002). “The Implementation of Inflation Targeting in Colombia”. Borradores de Economía, No. 202, March, available at: https://repositorio.banrep.gov.co/handle/20.500.12134/5220 4 See López-Enciso Enrique A.; Vargas-Herrera Hernando and Rodríguez-Niño Norberto (2016). “The inflation targeting strategy in Colombia. An historical view.” Borradores de Economía, No. 952. https://repositorio.banrep.gov.co/handle/20.500.12134/6263 5 According to the IMF, the percentage change in consumer prices between 2021 and 2022 went from 3.1% to 7.3% for advanced economies, and from 5.9% to 9.9% for emerging market and developing economies. 6 https://www.banrep.gov.co/es/noticias/junta-directiva-banco-republica-reitera-meta-inflacion-3