Public Enterprise Privatization: A General Equilibrium Analysis

This paper develops a general equilibrium model to examine the short‐run and long‐run optimal privatization policies. By assuming that all firms are public firms initially, the paper focuses on how the degree of product differentiation γ and the average efficiency of the industry influence the determination of the optimal privatization policy. The paper shows that privatization decreases the more efficient firms' outputs while increases the less efficient firms' outputs in the short run, and reduces all firms' outputs in the long run. The paper also shows that the larger is γ and the smaller is the number of firms, the more privatized will be the public firm in the short run. Moreover, as γ or the entry barrier f_E is sufficiently small, full privatization is the best policy in the long run. On the contrary, as γ and f_E are large enough, partial privatization is optimal.     

Preemptive entry in differentiated product markets

Summary. Models of spatial competition are typically static, and exhibit multiple free-entry equilibria. Incumbent firms can earn rents in equilibrium because any potential entrant expects a significantly lower market share (since it must fit into a niche between incumbent firms) along with fiercer price competition. Previous research has usually concentrated on the zero-profit equilibrium, at which there is normally excessive entry, and so an entry tax would improve the allocation of resources. At the other extreme, the equilibrium with the greatest rent per firm normally entails insufficient entry, so an entry subsidy should be prescribed. A model of sequential firm entry (with an exogenous order of moves) resolves the multiplicity problem but raises a new difficulty: firms that enter earlier can expect higher spatial rents, and so firms prefer to be earlier in the entry order. This tension disappears when firms can compete for entry positions. We therefore suppose that firms can commit capital early to the market in order to lay claim to a particular location. This temporal competition dissipates spatial rents in equilibrium and justifies the sequential move structure. However, the policy implications are quite different once time is introduced. An atemporal analysis of the sequential entry process would prescribe an entry subsidy, but once proper account is taken of the entry dynamics, a tax may be preferable. Received: April 26, 1999; revised version: September 22, 1999     

Salience and horizontal differentiation

I study a horizontal differentiation model in which one of two attributes of a product, product fit and price, is more salient for a consumer than the other and different consumers can find a different attribute salient. The attribute that is more salient is determined by relative differences between the two products and is determined endogenously as a result of firms' pricing strategies. High (low) marginal costs soften (toughen) price competition between firms. Pass-through rates are greater than 1 for some parameter values. Both industry- and firm-level cost increases may be beneficial for firms.     

Globalization and profitability of cross-border mergers and acquisitions

This paper studies how the surplus generated by the globalization process is divided between MNEs and owners of domestic assets. We construct an oligopoly model where the equilibrium acquisition pattern, the acquisition price and firms’ greenfield investments are endogenously determined. Acquisition entry is shown to be more likely when the complementarity between domestic and foreign assets is high. However, we show that such acquisitions might have a low profitability, since the bidding competition over the domestic assets is then so fierce that the firms involved would be better off not starting a bidding war. Risks associated with different entry modes are also examined.     

Lack of commitment to future privatization policies may lead to worst welfare outcome

We investigate the welfare consequences of a lack of commitment to future privatization policies. The government implements a privatization policy after the competition structure is determined by the entry of private firms. We find that in an equilibrium, the government fully privatizes (nationalizes) a public firm if private firms expect that the government fully privatizes (nationalizes) the public firm. This is because an increase in the number of firms entering a market increases the government's incentive to privatize the public firm, which mitigates future competition and stimulates entries. The full-privatization equilibrium is the worst privatization policy among all possible (either equilibrium or non-equilibrium) privatization policies for welfare because it causes excessive market entry of private firms. Partial commitment of a minimal public ownership share may mitigate this problem.     

Firms' Innovation,Public Financial Support,and Total Factor Productivity: The Case of Manufactures in Peru

Based upon an adjusted Crepon–Duguet–Mairesse (CDM) model, this paper analyzes the relationship between investment intensity, public financial support, innovation, and total factor productivity (TFP) for a sample of manufacturing firms of Peru with data obtained from the 2004 survey of science, technology, and innovation (STI) activities. The estimation of the model indicates that large firms are more likely to invest in STI activities and firms' size increases the probability of producing technological inovation (TI) and non‐technological innovation (NTI). STI firms' investment intensity and public financial support have also helped manufacturing firms to increase the probability of producing TI outcomes. Further, such support may have increased firms' investment on STI activities. The innovation effects on TFP, however, were statistically not clear or robust. Thus, whereas investment intensity did increase firms' TPF in low‐tech manufacturing firms, this is not the case for high‐tech firms. For this group of firms, relatively high capital–labor ratio and the availability of a high level of human capital seem to promote higher levels of TFP.     

Taxation of firms with unknown mobility

We analyze optimal business tax policy when some firms are able to escape taxation by moving abroad. In contrast to the existing literature, we assume that the true number of mobile firms is ex ante unknown. While the government may learn from the firms' location responses to past tax rate changes, firms may anticipate this and adjust their choices accordingly. We find that incomplete information on mobility substantially affects the properties and the implications of equilibrium policy choices. First, the government may find it optimal to set a tax rate that triggers partial firm migration but full revelation of the true number of mobile firms. Second, we show that, if the firms' outside option is attractive (i.e., relocation cost and foreign tax rates are low), expected tax rates and expected firm migration are higher if the degree of mobility is unknown. Third, there is a positive value of learning, i.e., commitment on future tax rates cannot increase the government's expected revenue. However, if the government can commit to a rule‐based learning mechanism, i.e., credibly tie its future tax policy to present policy outcomes, it may obtain a Pareto improvement.     

Import competition and firm refocusing

Abstract Recent theoretical work predicts a new margin of firm adjustment to trade liberalization; that is, multi‐product firms alter their product mix to focus on their core competencies in response to trade liberalization. Using detailed product data from U.S. public firms, I find strong empirical support for this prediction. Specifically, import competition leads multi‐product firms to drop peripheral products to refocus on core production. The weaker the linkages that a peripheral product shares with the core (as measured by the extent of joint sales, joint procurement, joint production, and joint sectorship), the more likely the peripheral product is to be divested in response to import competition.     

Standardization in electronic money

Abstract

Electronic money services are provided by the combination of Integrated Circuit (IC) cards and terminals. The compatibility of different brands of electronic money can be enabled by firms' joint adoption of standard terminals. In this paper, we analyse the effect of achieving compatibility among different brands of electronic money. We show that, if the unit production cost of a standard terminal is not so much different from that of a non-standard one, firms' joint adoption of standard terminals will increase the total sales of IC cards and the network size of terminals, thus raising consumers' surplus and firms' profits. On the other hand, if the unit cost of a standard terminal is so high that firms are discouraged from voluntarily adopting standard ones, the government may employ subsides to enhance efficiency. However, if the duty of implementing standardization is placed solely on the firms without subsidies, all the agents, including consumers and retailers, will be left worse off.     

PARTICIPATION IN WORKPLACE EMPLOYER‐SPONSORED TRAINING IN CANADA: ROLE OF FIRM CHARACTERISTICS AND WORKER ATTRIBUTES

In this work, we study the role of firm characteristics and worker attributes in determining participation in workplace employer‐sponsored training in Canada using the Workplace and Employee Survey (WES) of Statistics Canada. We attempt to answer the following questions using the rich information of firms that are available in WES data: Does firms' provision of workplace training encourage workers' participation in Canada? How do changes in market competition, organizational changes, and technological innovation affect workers' participation in workplace training in Canada? We find that firms' training provision significantly affects workers' participation in Canada. We also find that increased international competition, organizational changes, and technological innovation are significantly correlated with workers' training participation at workplaces. We note that workers in some sectors and in smaller firms have lower workplace training incidence and older, part‐time, production and marketing/sales workers and workers with preschool children participate less in workplace training. (JEL J080, J240, J290)     

DYNAMIC ENTRY WITH DEMAND AND SUPPLY SIDE SPILLOVERS

Supply side spillovers have been used to explain firms' entry behavior in the pharmaceutical industry. In contrast, demand side spillovers have received less attention. This paper identifies supply and demand spillovers using a dynamic model of strategic interaction. The results indicate that demand side spillovers are more significant than the supply side spillovers to generic drug firms, and the demand side spillovers increase a firm's market share by 3%–4% on average in subsequent market entry. In addition, with supply side spillovers alone, lowering entry barriers can increase future entry rates, while in the case of demand side spillovers, lowering entry barriers will have the opposite effect. (JEL L110, L130, D220)     

风险投资介入与创业企业国际化——基于我国高科技上市公司的实证研究

风险投资对创业企业的成长具有举足轻重的作用;那么,风险投资的介入对其国际化会带来怎样的影响呢?文章基于资源基础观、代理理论和信号传递理论,分析了风险投资影响创业企业国际化的内在作用机理以及风险投资机构特质与创业企业国际化之间的关系,并以我国300家高科技上市公司的非平衡面板数据为样本进行了实证检验.结论表明:(1)风险投资介入不仅能够开拓创业企业国际化的广度,而且也能加强创业企业国际化的深度;(2)不同特质的风险投资机构对创业企业国际化的影响存在差异,有外资背景的、行业专长高的或采取联合投资策略的风险投资机构有利于创业企业在海外市场上的拓展和渗透.文章不仅拓展了现有的企业国际化理论,而且对创业企业的国际化实践也具有借鉴意义.     

Committing to transparency to resist corruption

This paper studies firms' incentives to commit to transparent behavior in a competitive procedure modeled as an asymmetric information beauty contest managed by a corrupt agent. In his evaluation of firms' offers for a public contract the agent has some discretion to favor a firm in exchange for a bribe. While unilateral commitment to transparency is never incentive compatible, under some circumstances a voluntary but conditional commitment mechanism can eliminate corruption. A low quality firm may prefer not to commit only when the agent's discretion is strong and the market's profitability is small. In that situation, the high quality firms commit when commitment decisions are kept secret, but some conditions on firms' beliefs are required when commitment decisions are publicly announced. A mechanism combining both conditionality and a reward (a transparent selection advantage that needs not be large) allows complete elimination of corruption.     

New product introduction: follower firm timing behaviour

A multidisciplinary perspective is taken to the analysis of data upon the follower firm timing behaviour of 99 ‘non-pioneering’ firms introducing low-fat products into US food markets, encompassing extant approaches in marketing, economic and managerial literatures. The payoffs to followers are considered to be related to demand growth, the extent of competition, early mover advantages, firm characteristics, and risk and entry cost reductions. The propensity of firms to react to these potential payoffs is considered as involving four sequential stages and determined by organizational characteristics. The findings suggest: (i) follower firms vary in the rate at which they ultimately move through each and all of the stages identified; (ii) there is evidence that firm characteristics, time and previous entry (although not simply) impact upon the speed of market entry by firms reflecting the various influences on payoffs identified; and (iii) speeds of reaction are related to firms' abilities to internalize external market developments     

The Effects of Tariffs and Export Subsidies on Entry Barriers and Investment

This paper explains the effects of unilateral tariffs and export subsidies on entry decisions in an imperfectly competitive industry, and suggests that carefully targeted trade policies play a strategic role in shifting the industry structure and the terms of subsequent competition. The model provides a new justification for tariffs which is different from the traditional infant industry argument; the tariff affects foreign firms' reactions as well as those of the domestic firms. [410]     

MULTIPLIER EFFECTS OF PUBLIC SERVICES IN A TWO‐SECTOR MODEL OF MONOPOLISTIC COMPETITION

In a two‐sector model of monopolistic competition, this paper explores what impacts an expansion of government spending on public services has on national income. In the short run where entry and exit of firms are restricted, a rise in government spending on services like health care (which has only a role of substituting for market services) increases national income, but that on services like elderly care (which has not only this role but also another role of contributing to home production of services) decreases it. These results are reversed in the long run. Welfare effects of public services are also examined.     

Endogenous asset ownership structures in deregulated markets

This paper determines the equilibrium ownership structure in an emerging market deregulated by a joint privatization and investment liberalization. It is shown that bidding competition in the privatization stage is not sufficient for reaching an efficient equilibrium market structure. Competition in the ensuing entry stage is also required. Otherwise, one firm can induce another to take the role of the weak firm in the subsequent product market competition, by making concessions in the bidding in the privatization auction. It is also shown that Employment Guarantees may “help” the buyer of the privatized firm “abstain” from investing and thus create a less competitive market structure.     

Export rivalry,vertically-related markets,and optimal public ownership policy

This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.     

FIRM‐LEVEL DETERMINANTS OF POLITICAL INFLUENCE

This paper uses a large cross‐country survey of business firms to assess their influence on government policies. When controlling for endogeneity, we find that such an influence is associated with larger firms and to a lesser extent with government ownership, but not with the degree of competition. We also find that firms' perception of being politically influential is enhanced with the country's level of institutional quality.     

Local linkages: The interdependence of foreign and domestic firms in Ireland

This paper contributes to the literature on backward linkages—the degree of localization in input usage, focusing on the potential interdependence between foreign and domestic producer firms. Drawing on Irish sectoral data during 2000–2013, our main objective is to empirically examine how foreign and domestic producer firms' backward linkages might dynamically influence each other, and the extent to which they respond to export intensity and productivity levels from the two groups of firms. We find an interesting asymmetric interdependence pattern: (1) domestic firms' backward linkages are not impacted by the backward linkages of foreign firms; (2) more robust backward linkages of domestic firms can potentially induce more backward linkages from foreign firms; and (3) domestic firms' productivity shocks could generate a dynamic crossover impact on foreign firms' backward linkage status, but similar shocks originating from foreign firms generate little crossover impact on domestic firms’ backward linkage status. Our result on interdependent local linkages points to a potentially important role for domestic-to-domestic backward linkage formation in promoting foreign-to-domestic backward linkages.