How incumbent firms foster consumer expectations, delay launch but still win the markets for next generation products

Consumers learn quality of many durable products through word-of-mouth information while firms launch new and improved products frequently in these markets. This paper examines firm incentives to invest in R&D to compete for patents in makets where consumers rely on word-of-mouth information and have expectations about the new products before launch. When its loss due to a possible entry is above a threshold, an incumbent has more incentives than a potential entrant to invest in R&D for patents. Moreover, if the current product is more profitable, its true quality is above consumer priors and the quality of the new product is below a threshold, it is optimal for the incumbent to launch the new product after a time lag. The later the optimal time of launch, the greater is the incumbent’s potential loss if entry occurs and greater its incentives is to invest in R&D versus that of the entrants. While potential entrants are generally thought to have more incentives to invest in a drastic innovation which results in a race to launch the new products, we show that the more drastic the innovation, the later the optimal time of launch and greater are the incumbent’s incentives to invest in R&D when the value added of the new product can be conveyed to all the consumers. Only when consumers are uncertain about the value added of the new product, the incumbent’s incentives are lower. We also demonstrate that by promoting consumer expectations about the new product before launch, an incumbent has more time to launch and higher probability of dominating its market.     

The Relationship Between Competition and Incumbent’s Innovation

A static model is developed to analyse the incumbent’s innovation strategy under monopoly and duopoly. A number of potential objectives for the incumbent are modelled here, including the maximization of revenue, profit, and welfare (which are common among the network industries). Its marginal cost depends upon investment in new technologies and processes. The incumbent chooses its price and its level of investment in innovation. The incumbent’s elasticity of demand under both market structures and the incumbent’s market share under duopoly determine which market structure creates more incentives to innovate. For certain values of these variables, duopoly provides more incentives to innovate than monopoly. As expected, the incentives to innovate increase when the incumbent places greater weight on social welfare.     

Embedding CSR Values: The Global Footwear Industry’s Evolving Governance Structure

Many transnational corporations and international organizations have embraced corporate social responsibility (CSR) to address criticisms of working and environmental conditions at subcontractors’ factories. While CSR ‹codes of conduct’ are easy to draft, supplier compliance has been elusive. Even third-party monitoring has proven an incomplete solution. This article proposes that an alteration in the supply chain’s governance, from an arms-length market model to a collaborative partnership, often will be necessary to effectuate CSR. The market model forces contractors to focus on price and delivery as they compete for the lead firm’s business, rendering CSR observance secondary, at best. A collaborative partnership where the lead firm gives select suppliers secure product orders and other benefits removes disincentives and adds incentives for CSR compliance. In time, the suppliers’ CSR habit should shift their business philosophy toward pursuing CSR as an end in itself, regardless of buyer incentives and monitoring. This article examines these hypotheses in the context of the athletic footwear sector with Nike, Inc. and its suppliers as the specific case study. The data collected and conclusions reached offer strategies for advancing CSR beyond the superficial and often ineffectual ‹code of conduct’ stage.     

Induced Discrimination and Firm Size: Information vs Incentive Effects

This paper characterizes the differences in incentives to respond adversely to the Civil Rights Act of 1991 CRA91 across firm size. I then empirically test the firm responses and compare them to the incentives. I find that responses across firm size match the incentive differences. Thus firms appear to be rational as well as fully informed. The most pronounced adverse response comes from large firms. Firms with more than 100 employees reversed a trend of increasing employment at a rate of 0.28 weeks worked per year prior to CRA91 to a trend of decreasing employment at a rate of −0.21 weeks per year. Since this group employs 63.7 of the workforce, this has a profound impact on opportunities for protected groups.     

Reflecting on the Common Discourse on Piracy and Intellectual Property Rights: A Divergent Perspective

The common discourse on intellectual property rights rests mainly on utilitarian ground, with implications on the question of justice as well as moral significance. It runs like this: Intellectual property rights are to reward the originators for his/her intellectual labour mainly in monetary terms, thereby providing incentives for originators to engage in future innovative labouring. Without such incentives, few, if not none, will engage in creative activities and the whole human community will, thereby, suffer because of reduced inventions. However, such utilitarian argument on piracy as de-motivation may not be necessarily justified. In fact, intellectual property arrangement is one among different institutions concerning how the society may handle new ideas and creative works. In reality, private ownership over one’s intellectual product is merely a modern western concept that is being ‹advertised’ as being normative, which, by itself, is highly debatable. Alarming still, such normative argument assumes both justness and moral dimensions. This article will analyse whether such argument is philosophically sound.     

Debt reduction: the basis and shape of a new strategy

The burden of past restructuring of the external debt of developing countries has been distributed asymmetrically among creditors owing to the lack of incentives for voluntary debt reduction. “New creditors” have been deterred from lending voluntarily because their claims would inevitably be added to a mountain of bad debt. Therefore new ways of reducing debt and debt servicing must be found. Our authors suggest a process of concerted debt reduction designed to ensure that all the creditor banks involved play an equal part.     

Moral and Instrumental Norms in Food Risk Communication

The major normative recommendations in the literature on food risk communication can be summarized in the form of seven practical principles for such communication: (1) Be honest and open. (2) Disclose incentives and conflicts of interest. (3) Take all available relevant knowledge into consideration. (4) When possible, quantify risks. (5) Describe and explain uncertainties. (6) Take all the public’s concerns into account. (7) Take the rights of individuals and groups seriously. We show that each of these proposed principles can be justified both in terms of more fundamental ethical principles and instrumentally in terms of the communicating agent’s self-interest. The mechanisms of this concordance of justifications are discussed. It is argued that the concordance is specific for areas such as food risks in which agents such as companies and public authorities are highly dependent on the public’s trust and confidence. The implications of these findings both for moral philosophy and for practical food risk communication are discussed.     

Effectiveness of R&;D tax incentives in small and large enterprises in Québec

In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is –0.10 in the short run and –0.14 in the long run, with slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level-based R&D tax incentives that is particularly acute for large firms. For small firms it is not sizeable enough to suppress the R&D additionality, at least not for quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level-based tax incentives.

Organizational Citizenship Behavior and the Public Service Ethos: Whither the Organization?

Public services worldwide have been subject to externally imposed reforms utilizing tools such as financial incentives and performance targets. The adverse impact of such reforms on a public service ethos has been claimed, but rarely demonstrated. Individuals within organizations work beyond their formal contracts of employment, described as Organizational Citizenship Behavior (OCB), to further organizational interests. Given New Public Management reform and the subsequent contextual changes in the way in which public sector organizations are managed and funded, the present study theorizes that OCB directed towards the organization may be ‘crowded-out’. This article tests the relationships between public service ethos and OCB and it presents empirical evidence from a study in England (n = 433) of the ability of each dimension of this ethos to predict OCB.     

Vertical integration in production and services: development in transaction cost economics

In this paper, we first establish the core, fundamental concepts of Williamson’s TCE, examining the different governance structures or the institutional alternatives that TCE theory proposes. We go on to describe some critical considerations and theoretical proposals that correspond fundamentally to Williamson’s heuristic model, the integration of incentives in organizational forms, idiosyncratic demand, and how the concept of transaction is conceived in general.     

Evaluating the effects of equity incentives using PSM: Evidence from China

This paper investigates the effects of equity incentives on firm performance in Chinese listed firms. We address the sample selection problem by employing the propensity score matching methodology. Results show that, (1) On the whole, performance is positively related to equity incentives even after controlling for sample selection bias; (2) The final control rights have an important impact on the effects of equity incentives. The execution of equity incentives in privately owned firms can significantly decrease the agency costs between shareholders and managers, but such effects cannot be observed in state-owned firms; (3) Effects of equity incentives depend on the incentive type, that is, comparing to stock-based incentives, option-based incentives can reduce the agency costs significantly, thus are more effective; (4) Ownership structure also has important impacts on the effects of equity incentives. The agency costs decrease in firms with more decentralized ownership after introducing equity incentive, while in concentrated firms the effect is negligible.     

When giving some away makes sense to jump-start the diffusion process

This paper uses an analytical model to examine when it makes sense to provide incentives to innovators to adopt a new product. The model allows for separate segments of innovators and imitators, each of which follows a Bass-type diffusion process. Interestingly “seeding” the market is optimal for a limited range of situations and these do not appear to include those where there is a downturn in sales (chasm) as sales move from the first to the second segment.     

Organizational Governance and Ethical Systems: A Covenantal Approach to Building Trust

American businesses and corporate executives are faced with a serious problem the loss of public confidence. Public criticism, increased government controls, and growing expectations for improved financial performance and accountability have accompanied this decline in trust. Traditional approaches to corporate governance, typified by agency theory and stakeholder theory, have been expensive to direct and have focused on short-term profits and organizational systems that fail to achieve desired results. We explain why the organizational governance theories are fundamentally, inadequate to build trust. We advance a conceptual framework based on stewardship theory characterized by “covenantal relationships” and argue that design of governance mechanisms using a covenantal approach is more effective in building trust in organizations. A covenantal relationship is a specialized form of a relational contract between an employee and his or her organization. We argue that regardless of incentives and control mechanisms carefully designed through contractual mechanisms, in the absence of covenantal relationships it is extremely difficult to build trust within organizations. We propose that organizations are more likely to build trust – both at the organizational level and at the interpersonal level – when they create reinforcing and integrated systems that honor implied duties of “covenantal relationships.”     

Strengthening the resilience of an economy

The financial crisis has affected the real economy in stages yet nevertheless at an unexpected rate and with all regions being affected simultaneously. It advanced almost independently of the regions’ exposure to the actual initial causes, among them the subprime crisis, innovative financial products, dubious microeconomic incentives, inefficient regulation and macroeconomic imbalances. The following analysis asks how national economic structures can be made more resilient to a shock (be it a financial crisis or another turbulence) and how economic policy can act in order to stabilise the economy before and after such a shock.     

全球中小企业税收优惠制度改革及借鉴

20世纪70年代开始,主要发达国家都对中小企业税收优惠制度进行了重大改革:从全面优惠到有选择的重点优惠;在坚持税收法定原则的基础上,灵活务实;引入税式支出,对税收优惠进行绩效考评;非常注重政策的配套与协调等。中国在中小企业税收优惠制度方面存在法定性不足、受惠主体过窄、力度小、优惠方式单一、导向性不明显、配套协调不够、缺少科学合理的评价等问题。因此,中国应借鉴全球中小企业税收优惠制度改革的经验,有针对性地进行改革。     

Strategic R&D Investment Under Liability Law

This paper analyzes the incentives of duopolists to invest in advanced care technology under liability law. We establish that investment incentives under strict liability are in line with the taxonomy of Fudenberg and Tirole (1984), whereas the investment incentives under negligence most likely are not. Indeed, investment incentives under negligence are dependent on the timing of the policy maker’s regulations, whether or not due care is firm specific, and whether or not precautionary measures are durable.     

Effects of distribution channel structure in markets with vertically differentiated products

This study examines how the structure of distribution channels may influence firms’ quality and price strategies and how they may in turn affect consumer welfare. It treats product quality as a decision variable so that the degree of product substitution becomes endogenous rather than exogenous as in previous studies. We find that, with vertically differentiated firms, the changes in channel structure have asymmetric effects depending on whether they occur in the high-quality channel or in the low-quality channel. The product quality of the high-quality channel decreases when it decentralizes unilaterally. However, product quality of the low-quality channel would increase when it decentralizes. The high-quality manufacturer and its channel suffer more from decentralization in comparison with their low-quality counterparts, and the low-quality manufacturer actually receives greater profits when both channels are decentralized. An important driver behind these asymmetries is the interaction between firms’ pricing incentives in integrated versus decentralized channels and what consumer segments they serve. Our analysis indicates that decentralization may reduce consumer welfare, but decentralization in the high-quality channel hurts consumers more than that in the low-quality channel. Therefore in a competitive environment where firms make both quality and price decisions, channel integration would have significant welfare enhancement effects through the elimination of double marginalization, especially if it happens in the high-quality channel. Moreover, we demonstrate that once quality is endogenized, integration is the only equilibrium of channel structure choices. This suggests that the private incentives of firms may actually benefit consumers but do not have to be in line with the general preference of industry regulation for decentralization.     

A Brief History of Long Work Time and the Contemporary Sources of Overwork

What are some of the key historical trends in hours of work per worker in US? What economic, social-psychological, organizational and institutional forces determine the length of individuals’ working hours? How much of the trend toward longer working hours among so many workers may be attributable to workers’ preferences, workplace incentives or employers’ constraints? When can work become overwork or workaholism – an unforced addiction to incessant work activity which risk harm to workers, families or even economies? The first part of this article traces the history of the length of working hours and its recent polarization. The second part develops a multi-disciplinary model to identify motivations behind working longer hours. Individuals' desired work hours will stem from the weighted contribution of five sources: (1) current real wage rates; (2) forward-looking, wage trajectories; (3) relative status associated with hours of labor; (4) intrinsic rewards, process benefits or amenities acquired through work; (5) hours demanded by the employer and other structural constraints, to which workers may adapt. Employers and their established conditions of work have influenced the course of long run trends labor supply and in work time structures. The final section suggests policies that might address the persistence of long hours.     

Global Standards and Ethical Stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index

The increased scrutiny of investors regarding the non-financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of ‘holding the market’ against the cost of having positions in companies that are subsequently found to have questionable business practices. The availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a Socially Responsible Investment (SRI) benchmark at relatively low cost. The increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds. This article examines whether these incentives have been so far detectable with particular reference to the Dow Jones Sustainability Stoxx Index (DJSSI) that focuses on the European corporations with the highest CSR scores among those included in the Dow Jones Stoxx 600 Index. The aim of the article is twofold. First, we analyse the performance of the DJSSI over the period 2001–2006 compared to that of the Surrogate Complementary Index (SCI), a new benchmark that includes only the components of the DJ Stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances. Second, we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities.     

Toward a relational perspective of franchising chains

In many professional and services industries, firms try to scale up their operations by reproducing practices in new locations through franchising arrangements, especially business format franchising. The classic but still prevailing explanations for franchising related phenomena, especially the initiative of franchising, the propensity to franchise, and the franchise performance, are mostly based on two orders of reasons (or a combination of them): franchising is either explained as a means to deal with resource scarcity or (and) as a mechanism for franchisor and franchisee to align incentives between themselves. However, empirical studies have shown limited support for both such claims, especially in face of the so called plural form, where proprietary and franchised units of the same franchisor co-exist. It may also be argued that the traditional literature on franchising has assumed a high level of homogeneity within and between franchising “networks,” possibly due to the perception that they tend to be “dominated” by a high level of standardization and replication of practices, both operative and relational. However, learning processes in such “networks” have recently been brought in as an attempt to capture other mechanisms that may underlie their operation and sustainability. This article seeks to explore a third perspective to look at franchising “networks,” by drawing from the literatures on capabilities and industrial networks. Seen from this perspective, business format franchising may involve more than the mere replication or exploitation of a recipe, especially if we take into consideration the partly idiosyncratic nature of both the relationships between actors and their capabilities and intentions. Within this perspective, variety preservation, and not only uniformity, may be recognized by participants as relevant for the performance of the franchise chain. In other words, variety may reflect the need for the refinement of the “package” throughout time, in more than one ways, together with the gradual development of the network and the learning experiences that take place in that context.