Services,industry evolution,and the competitive strategies of product firms

Services of different types have become increasingly important for product firms. While these firms mainly focus on products, managers and researchers lack a comprehensive framework to understand when to make significant investments in particular kinds of services. We identify three categories of product‐related services from a product firm—smoothing and adapting services, which complement products, and substitution services, which enable customers to pay for the use of a product without buying the product itself. We develop propositions about the relative level of these different kinds of services vis‐a‐vis industry evolution, as well as suggest how these services affect industry structure. We draw upon various literatures, though we conclude that the relationship between products and services is more complex and richer than any one literature suggests. Copyright © 2014 John Wiley & Sons, Ltd.     

Financial distress and the business cycle

In this paper we argue that firms' financial distress shouldplay a greater role in the macroeconomic analysis of the businesscycle. We provide a non-technical account of a general equilibriummodel that exhibits financially-driven equilibrium cycles. Weshow that the empirical evidence is widely supportive of thekey hypothesis and implications of our approach. We use themodel in order to evaluate the effects of several policy measures.It turns out that deepening the market for second-hand capitalgoods, subsidizing the interest payments of companies whichstart up when financial conditions are tight, and bailing outsome companies in default can indeed 'stabilize' the economy.By way of generalization, we may say that the policy reactionto a financially driven bust should be accommodating.     

The half-truth of first-mover advantage

Many executives take for granted that the first company in a new product category gets an unbeatable head start and reaps long-lasting benefits. But that doesn't always happen. The authors of this article discovered that much depends on the pace at which the category's technology is changing and the speed at which the market is evolving. By analyzing these two factors, companies can improve their odds of succeeding as first movers with the resources they possess. Gradual evolution in both the technology and the market provides a first mover with the best conditions for creating a dominant position that is long lasting (Hoover in the vacuum cleaner industry is a good example). In such calm waters, a company can defend its advantages even without exceptional skills or extensive financial resources. When the market is changing rapidly and the product isn't, a first entrant with extensive resources can obtain a long-lasting advantage (as Sony did with its Walkman personal stereo); a company with only limited resources probably must settle for a short-term benefit. When the market is static but the product is changing constantly, first-mover advantages of either kind--durable or short-lived--are unlikely. Only companies with very deep pockets can survive (think of Sony and the digital cameras it pioneered). Rapid churn in both the technology and the market creates the worst conditions. But if companies have an acute sense of when to exit-as Netscape demonstrated when it agreed to be acquired by AOL-a worthwhile short-term gain is possible. Before venturing into a newly forming market, you need to analyze the environment, assess your resources, then determine which type offirst-mover advantage is most achievable. Once you've gone into the water, you have no choice but to swim.     

Firms' Stakeholders and the Costs of Transparency

We develop a model of a firm whose production process requires it to initiate and nurture a relationship with its stakeholders. Because there are spillover benefits of being associated with a "winner," the perceptions of stakeholders and potential stakeholders can affect firm value. Our analysis indicates that while transparency (i.e., generating information about a firm's quality) may improve the allocation of resources, a firm may have a higher ex ante value if information about its quality is not prematurely generated. Transparency costs arise because of asymmetric information regarding the extent to which stakeholders benefit from having a relationship with a high-quality firm. These costs are higher when firms can undertake noncontractible innovative investments that enhance the value of their stakeholder relationships. Stakeholder effects of transparency are especially important for younger firms with less established track records.     

Monitoring, liquidation, and security design

By identifying the possibility of imposing a creditable threatof liquidation as the key role of informed (bank) finance ina moral hazard context, we characterize the circumstances underwhich a mixture of informed and uninformed (market) financeis optimal, and explain why bank debt is typically secured,senior, and tightly held. We also show that the effectivenessof mixed finance may be impaired by the possibility of collusionbetween the firms and their informed lenders, and that in theoptimal renegotiation-proof contract informed debt capacitywill be exhausted before appealing to supplementary uninformedfinance.     

Marketing Orientation in the Third Sector: The Art of Afro Reggae

Although there is a plethora of literature on marketing orientation in the private sector, within the nonprofit arena, this topic has been largely ignored. This paper analyzes the orientation and experience of Afro Reggae, a successful Brazilian nongovernmental organization that maintains a permanent presence in four drug-dominated slums in Rio de Janeiro. The present research uses the case study method for purposes of collecting and analyzing information. The paper discusses the implications for research in the area of marketing orientation in the third sector as well as the lessons learned regarding the low-income population vis-à-vis their experience with Afro Reggae.     

Managerial Compensation and the Market Reaction to Bank Loans

This article considers why a manager would choose to submithimself to the discipline of bank monitoring. This issue isanalyzed within the context of a model where the manager enjoysprivate benefits, which can be restricted by the monitor, andis optimally compensated by shareholders. Within this settingwe find that managers will submit to monitoring when they receivefavorable private information. This result is consistent withevent study evidence that suggests that the market has a favorableview of financing choices that increase monitoring.