Input Pricing and Market Share Delegation in a Vertically Related Market: Is the Timing Order Relevant?

This paper adds to the literature on the strategic use of managers’ contracts in competition by examining whether market‐share delegation, in which managers receive rewards based on a combination of profits and market share, and the order of moves affect input pricing in a vertically related market. It shows that: (i) input pricing is not affected by delegation form and the order of moves between upstream and downstream firms under quantity competition; (ii) downstream firms obtain the same profit as in the simple Nash equilibrium regardless of delegation forms in a delegation–input price–quantity competition game; and (iii) the upstream monopolist will set input price beforehand regardless of the delegation form. Since the outcomes in our model create higher quantity and lower price in a Cournot product market, it lessens the double‐marginalization problem in such a vertically separated industry.     

Endogenous Market Structures in the Presence of a Socially Responsible Firm

We consider the endogenous selection of strategic contracts in an asymmetric duopoly with substitutable goods. the duopoly comprises a typical managerial firm with a sales delegation and a socially responsible firm (CSR firm) with a linear combination of social welfare and quantity as its managerial delegation contract. In particular, we examine how the equilibrium market structure changes from the case wthere both firms adopt sales delegation contracts to the case wthere one of the firms becomes a CSR firm, after the owners of the firms select their strategic contracts. We show that two market structures that are asymmetric with respect to their strategic contracts can become equilibrium market structures under the pure strategic contract class. Furthermore, we consider a unique mixed strategy equilibrium to examine how the risk domination between the two asymmetric equilibrium market structures affects equilibrium selection. there, we find that the competition wthere the firm with the sales delegation and the CSR firm have a price contract and a quantity contract, respectively, risk-dominates the competition wthere the firms have a quantity contract and a price contract, respectively. Finally, by deriving the order of social welfare among the four subgames, we show that the social incentive does not coincide with the private incentive in the robust equilibrium with respect to risk domination in the endogenous selection game of the strategic contracts of the asymmetric duopoly with the firm with a sales delegation and the CSR firm.     

A GLOBAL SUPPLY CHAIN PROFIT MAXIMIZATION AND TRANSFER PRICING MODEL

In environments where tax rates in local regions do not represent major decision factors, a cost minimization methodology, which represents the most common optimization modeling approach for integrated manufacturing and distribution planning, can help formulate an effective integrated plan. However, when planning flexibility or alternatives exist because of differing local country tax rates and types and intra‐company transfer pricing options, cost minimization methodologies may inaccurately identify profit‐maximizing global production and distribution plans. Instead, a profit maximization model that explicitly evaluates decisions such as where to incur tax liabilities and how to set intra‐company prices may be required to develop an integrated global manufacturing and distribution plan. In this paper, we discuss and formulate a model that yields profit maximizing global production and distribution plans. We discuss the managerial implications of our results, and the potential applications and benefits of the model.     

FISCAL POLICY AND ECONOMIC GROWTH IN THE IMPERFECT LABOR MARKET

Using a simple overlapping generations model with the growth engine of public capital by incorporating the union wage setting, we examine the effects of fiscal policies on unemployment, economic growth and welfare in the imperfect labor market. We demonstrate that the growth‐maximizing tax in the imperfect labor market is larger than that of the perfect labor market. However, as the allocation ratio of public capital increases, the growth‐maximizing tax in the imperfect labor market approaches that of the perfect labor market, thus reducing the unemployment rate. The policy implications of the intergenerational welfare aspects are also mentioned.     

Does Final Market Demand Elasticity Influence the Location of Export Processing? Evidence from Multinational Decisions in China

Given the importance many developing countries attach to attracting foreign investors engaged in export‐processing activities, surprisingly little is known about the sensitivity of these investors to local wage differences and the role played by final product market conditions. Using data on 2,884 foreign‐invested manufacturing projects in China, we estimate the importance of host province wages to firm’s location choice and investigate how this sensitivity varies with demand conditions facing the industry in China’s largest export market, the United States. We use the profit function to show theoretically that firms’ ability to pass wage costs through to final markets matters for location choice and we test the implications of the theory using a control‐function technique for conditional logit developed by Petrin and Train . As predicted, we find that investors facing more elastic demand in the US market are more sensitive to wages across export‐processing locations. Taking both the factor intensity of the activity and final market demand elasticity into account, we find that investors producing homogenous goods, such as metals, chemicals, and food processing, are more likely to be attracted by relatively low wages than those producing differentiated goods. We also find that while OECD investors are more responsive to wage differences than are investors from Hong Kong, Taiwan and Macau, they are less likely to choose a location that has received a large share of prior foreign investment.     

STRATEGIC INVESTMENT IN A NEW MIXED MARKET WITH LABOR‐MANAGED AND PROFIT‐MAXIMIZING FIRMS

This paper examines a continuous‐time mixed model of the strategic investment decisions of a labor‐managed income‐per‐worker‐maximizing firm and a profit‐maximizing firm in a new mixed market and constructs a set of perfect equilibria of the continuous‐time mixed model. The paper shows that there exists a particular equilibrium in which neither firm invests to its steady‐state reaction curve. The paper also finds that the existence of the particular equilibrium depends on each firm's being able to respond quickly to its rival's investment and that the particular equilibrium is profitable for each firm.     

Ownership coordination in a channel: Incentives,returns, and negotiations

In many industries firms have to make quantity decisions before knowing the exact state of demand. In such cases, channel members have to decide which firm will own the units until demand uncertainty is resolved. The decision about who should retain ownership depends on the balance of benefit and risk to each member. Ownership, after all, is costly. Whichever member owns the units accepts the risk of loss if more units are produced than can be sold. But ownership also grants firms the flexibility to respond to demand once it becomes known by adjusting price. In this study, we analyze ownership decisions in distribution channels and how those decisions are affected by demand uncertainty. We model demand based on micro-modeling of consumer utility functions and capture demand uncertainty related to market size and price sensitivity. This study shows that as long as the degree of uncertainty about market size is intermediate, the retailer and the manufacturer both benefit when the manufacturer maintains ownership of the units. But when there is substantial uncertainty about market size, the retailer and the channel are better off if the retailer takes ownership but the manufacturer still prefers to maintain ownership. Thus, there is potential for channel conflict regarding ownership under high levels of uncertainty. We show that, using product returns, the manufacturer can achieve the same outcome under retailer ownership as under manufacturer ownership. This provides an additional new rationale for the prevalence of product returns. The first-best outcome (from the perspective of total channel profit), however, is under retailer ownership without product returns when uncertainty is high (i.e., product returns reduce the total channel profit). Negotiations between the manufacturer and the retailer can lead to the first-best outcome but only under quite restrictive constraints that include direct side payments by the retailer to the manufacturer and the retailer being pessimistic about its outside option (when an agreement cannot be reached) during the negotiation.     

Distribution Channel Decentralization and Strategic Durability Choice

In a simple two‐period setting we examine a decentralized distribution (marketing) channel consisting of an up‐stream durable‐goods manufacturer and down‐stream retailer. The manufacturer sets the wholesale price and the product’s durability while the retailer selects an output level. We show that in this setting, the profit‐maximizing manufacturer unambiguously selects a higher durability than the socially efficient (cost‐minimizing) level in both uncommitted sales and rental markets. We show this ‘reversed planned obsolescence’ result is due to the strategic benefit of durability in this double‐marginalization (double monopoly mark‐up) setting. This is in stark contrast to the usual integrated channel result where the profit‐maximizing manufacturer will select an efficient level of durability in rental markets and an inefficiently low durability in uncommitted sales markets (due to the selling firm’s commitment problem with potential buyers). Intuitively, with a decentralized distribution channel, the manufacturer faces potential commitment problems with both current buyers and its down‐stream retailer. We show, only in cases where both sources of commitment issues are removed (i.e. the manufacturer can credibly commit to both potential buyers and its retailer), will the profit‐maximizing durability choice be socially efficient.     

Price Versus Quantity in a Duopoly with a Unilateral Effect and with Bargaining over Managerial Contracts

This study examines the endogenous choice of each firm’s strategic contract, that is, a price contract or a quantity contract, in a duopoly in which their demand functions are asymmetric when the content of their managerial contracts is determined through bargaining between the owner and the manager. The degree of asymmetry between their demand functions corresponds to the relation between the goods they produce. In contrast to the case wherein each firm’s delegation parameter is determined through profit maximization, we show that the quantity competition cannot become the equilibrium market structure when the bargaining power of the manager relative to that of the owner is sufficiently low. In particular, when the relation between the two goods is complementary, two asymmetric market structures can be observed in equilibrium. Furthermore, we consider the situation in which the relative bargaining power of the manager to that of the owner within each firm is different between the two firms.     

Exchange‐rate Misalignments in Duopoly: The Case of Airbus and Boeing

We examine the effect of exchange‐rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar‐denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange‐rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning‐by‐doing, even a temporary departure of the exchange rate from its long‐run equilibrium level may have permanent effects on the industry.     

A comparative analysis of marketing promotions and implications for data analytics

Retailers use many different marketing promotions to increase sales and profits. These promotions include price reductions, coupons, cash mail-in rebates, free gift cards, and buy-one-get-one (BOGO) discounts. The type of promotion used results in different outcomes for demand, profit, average price, consumer surplus, and sales taxes collected. We perform comparative analysis of these five promotions and their outcomes. We show that for the same discount amount, price reductions result in the lowest average price. For products with weakly diminishing consumer utility and low consumer stockpiling, BOGO promotions result in the largest demand, profit, consumer surplus, and taxes collected. Cash mail-in rebates may result in large profit and taxes collected, but they perform poorly in terms of average price paid and consumer surplus. We also find that a retailer offering a delayed incentive (i.e. gift cards and mail-in rebates) offers a larger reward but provides lower consumer surplus than when offering an immediate incentive (i.e. price reduction and BOGO). In a segmented market with a price-insensitive consumer segment, immediate incentives have the disadvantage of allowing price-insensitive consumers arriving during the promotion to obtain the discount, which reduces the discount effectiveness. The addition of more retailer objectives to maximizing profit, such as demand maximization or consumer surplus, increases the effectiveness of immediate incentives. We also provide a framework for estimating the important parameters for evaluating promotion effectiveness using readily available transactional data and examine its accuracy using a simulation experiment.     

TESTING WAGE AND PRICE PHILLIPS CURVES FOR THE UNITED STATES

This paper demonstrates how the labour and product markets interact in determining as outcome a generalized reduced‐form price Phillips curve. For the labour market we consider a wage Phillips curve and for the product market a price Phillips curve. We estimate separately the wage and price Phillips curves for the USA, using ordinary least squares, non‐parametric estimation and three‐stage least squares techniques. The finding is that wages are always more flexible than prices with respect to their respective demand pressure and that price inflation responds somewhat more to a medium‐run cost pressure than does wage inflation. The implications for macroeconomic stability are demonstrated. We also show—as a link between product and labour markets—that employment is related to output as Okun's law states. In comparing linear and non‐linear estimates of the wage and price Phillips curves we find furthermore that for some relationships non‐linearities are important while not for others. Although overall the non‐linear estimates tend to confirm our linear estimates, non‐linearities in some relationships of the Phillips curve are important as well.     

The Effects and Consequences of Simultaneously Arising Different Network Externalities on the Demand for Status Goods

The purpose of this paper is to explore how two main forms of network externalities, bandwagon and snob effects, influence the market demand for status goods when they arise simultaneously. If the snob effect is greater than the bandwagon effect, the demand function involving both effects is less elastic than the demand function that does not involve network externalities; however, the market demand function becomes increasingly elastic as the bandwagon effect becomes stronger. By introducing the concept of net social external effect, the change in the quantity demanded as a consequence of the resultant of network externalities can be measured.     

The Profitability of Option‐Based Contrarian Strategies: An Empirical Analysis

Short‐selling restrictions limit investors' opportunities to profit from contrarian strategies in equity markets. We examine the proposition that incorporating options into contrarian strategies constitute a viable alternative to investors when short‐selling restrictions are in place. In particular, we combine equities with the call and put options traded on the Australian Stock Exchange to investigate the profitability of contrarian strategies in the hybrid market and options market alone. We assess the practical issues in the execution of these approaches, including testing for the effects of limited liquidity and transaction costs. We also investigate how fundamental factors (such as dividend yield, firm size, book‐to‐market ratio, earnings per share, price‐earnings ratio, value stocks, and market conditions) affect contrarian portfolios. The results show that employing options can enhance the profitability of contrarian strategies under certain market conditions.     

Equilibrium with Profit-Rate Maximizing Producers

We consider a general equilibrium model with producers maximizing their profit rates and using some fraction of profit for investment. Under some assumptions a stationary equilibrium exists and, in the case of generalized Leontief technologies, the equilibrium prices can be found by means of the cost-minimizing procedure. If at least one active producer uses some fraction of his profit for dividends, and therefore not investing all his profit, an equilibrium allocation is technologically inefficient. We also consider a multi-regional variant of the model and study the existence of the equilibrium problem from another point of view. Namely, we fix wage rates in the regions and equalize labor demand and labor supply by varying the fractions of profit used for investment.     

环境管制、产品质量与企业收益——兼论污染罚金政策的使用效率

本文引入消费者效用函数、政府环境管制成本函数、企业生产成本函数,研究了环境管制对企业产品质量和利润的影响。研究表明:(1)在政府财政收入最大化的条件下,政府对企业征收污染罚金是不会让污染生产的企业退出市场的;(2)在政府财政收入最大化、消费者效用最大化和企业利润最大化的均衡条件下,政府征收污染罚金时,会降低产品环境质量;(3)政府加大罚金力度会提高生产清洁产品企业的净收益,而降低生产污染产品企业的净收益,并且清洁生产企业的利润比污染生产企业的利润高;(4)政府如果放弃财政收入最大化目标,对清洁生产的企业予以激励,对污染的企业在说服教育的基础上采用创新弃权书的管制方式,否则即对其征收罚金,这样会使两类企业都进行清洁生产。这些结论表明政府对污染生产企业征收罚金时,重在引导教育并建立激励型生态补偿制度,注重政策的使用效率。     

DURABILITY CHOICE AND THE PIRACY FOR PROFIT OF GOODS

We explore the impact of durable goods piracy in a simple two‐period durability choice setting where an originator faces a future for‐profit pirate that clones or duplicates copies of the durable good. We find that a social planner, as well as a monopoly originator, may well engage in a sort of ‘reversed planned obsolescence’. In other words, they manufacture a product that is more durable than the first‐best cost‐minimizing level, if they cannot directly control the pirate. We show this occurs even in rental or committed sales settings, indicating Swan's market independence result does not hold here.     

A MODEL OF INTERACTION BETWEEN THE VIRTUAL AND THE REAL ECONOMY

This paper demonstrates through a formal model how the wealth effect created by a stock market boom leads to the expansion of demand and output mostly through debt‐financed private consumption. However, inherent in this expansion is the threat of a subsequent contraction caused by the rising burden of servicing debt and falling creditworthiness. The formal analysis captures more precisely these conditions; it shows that, even in the medium run, the growth rates of the wealth in the stock market and of the real economy may move in opposite directions.     

Is the system reliability profitable for retailing and consumer service of a dynamical system under cross-price elasticity of demand?

Retailing strategy is one of the most crucial factors for industries. A proper retailing strategy can help to enhance consumer service and increase the industry's profit. An improved approach to retailing is suggested in this research to deliver superior customer service while maximizing profits in a dynamic system. The study analyzes a retailing strategy for a demand with cross-price elasticity upon the retail price. A product's cross-price elasticity and the system reliability are critical factors in retailing. Understanding the cross-price elasticity of demand between products helps retailers to make pricing decisions that maximize profits by maintaining demand. Imperfect products are produced due to an imperfect production system. The imperfect ones must be adjusted with some costs to make them perfect for better retailing. The system failure rate is crucial for retailing under cross-price elasticity of demand patterns. Production system reliability, cross-price elasticity of demand, and consumer service are all essential factors that can impact a company's success in the market. The production rate is considered time- and system failure rate-dependent. Contradictory to the literature, a dynamical system is proposed for improved retail management, which is solved using the Euler-Lagrange theory. Finally, one can achieve the expected maximum profit for this retail system with optimum selling prices for different products by reducing the system failure rate. Some numerical illustrations with graphical representations are provided to validate the current study. Numerical examples show that applying cross-price elasticity of demand for more than two identical products provides 35% more profit for the retail industry than a single type of product.     

Circles within a Circle: The Condition for the Possibility of Ethical Business Institutions Within a Market System

How can a business institution function as an ethical institution within a wider system if the context of the wider system is inherently unethical? If the primary goal of an institution, no matter how ethical it sets out to be, is to function successfully within a market system, how can it reconcile making a profit and keeping its ethical goals intact? While it has been argued that some ethical businesses do exist, e.g., Johnson and Johnson, the argument I would like to put forth is that no matter how ethical a business institution is, or how ethical its goals are, its capacity to act in an ethical manner is restricted by the wider system in which it must operate, the market system. Unless there is a fundamental change in the notion of the market system itself, the capacity for individual businesses to act in an ethical manner will always be restricted. My argument is divided into two parts. The first part is to show the inherent bias towards unethical outcomes that is inherent in the market system. The second part is to suggest how to reorient the general economic framework in order to make ethical institutions more possible. The question then becomes, how to define economic behavior in terms other than competition for profit.