Group Buying Commitment and Sellers’ Competitive Advantages

This paper examines a model of duopoly firms selling to an exogenously formed buyer group consisting of members with heterogeneous preferences. Two research questions are addressed: (1) when is it optimal for a buyer group to commit to exclusive purchase from a single seller, and (2) how does the presence of group buying and the exclusive purchase commitment associated with it affect firms’ incentives to invest in quality improvement? We find that, even though exclusive purchase commitment benefits buyers when the competing products provide similar quality, it may lower buyer surplus if one product is significantly advantaged and/or the competing products are not highly differentiated horizontally. This result is robust even if the buyer group is formed endogenously. In addition, contingent on the similarity between the competing sellers’ investment costs, the sellers’ incentives to improve quality may be positively or negatively affected by the presence of group buying.     

How R&D Competition Affects Investment Choices

We analyze firm research and development investment incentives in a framework in which only one innovation can be undertaken. We assume that the probability of discovering the innovation depends on a parameter that represents the technical difficulty of innovating. We show that patent protection is not always necessary for investments to be made. With patent protection, research and development competition leads to a symmetric equilibrium. Moreover, firms over‐invest in marginal innovation but under‐invest in difficult innovation, which explains why and how public authorities should intervene to promote specific research in certain economic sectors. Copyright © 2015 John Wiley & Sons, Ltd.     

Consumer Feelings and Equilibrium Product Quality

This paper considers the possibility that a firm can invest not only in the true product quality, but also in activities such as merchandizing and store atmospherics that influence consumer perception of the product quality. Consumers make their purchase decisions based on the signal (perception) of quality they experience, where the signal is influenced by both the true product quality valued by the consumer and the affect of the consumer at the time of the signal formation. In this situation, a firm finds it optimal to invest in both product quality and in variables inducing affect, even though rational consumers, in equilibrium, correctly solve back for the true product quality. We uncover an asymmetry in the effects of the cost of producing quality and the cost of inducing affect. As a firm's cost of quality decreases, the firm will find it optimal to invest more both in the true quality and in the affect inducement, even if it does not have a lower cost of inducing affect. Conversely, if a firm finds it easier to induce affect, then the product quality decreases but affect-inducing activities increase.
Under competition, we find that the firm investing more in quality also invests more in affect creation. An implication of this is that in a competitive environment, consumers can rationally associate an up-lifting store atmosphere, affect inducing merchandizing, or mood-creating communication with high quality products even when the firm has no need to signal their private cost of quality information, and when there is no consumption externality of the affect. We also analyze the case in which firms might have different costs and consumers are uncertain about the costs incurred by a given firm. Here again we show that the perceived quality production is positively correlated with both the true quality and the affect inducing activities.     

Acquisition of skills, labor subsidies, and agglomeration of firms

The paper develops an analytically solvable model of new economic geography in which agglomeration of firms is caused by workers' investment in the acquisition of skills. Skilled workers earn high wages and have a large demand for goods. Since firms are attracted towards the demand, they locate at proximity of skilled workers. More workers invest in the acquisition of skills when more firms ask for these skills. Consequently, partial or full agglomeration of firms may be the location equilibrium. We also show that a reduction in transport costs increases the regional governments' incentives to subsidize the acquisition of skills.     

产品差异、转移成本和创新激励

文章在豪泰林空间差异化模型的基础上构建了静态完全信息博弈模型,研究转移成本和生产成本对市场竞争产生的影响以及转移成本下企业的创新激励。     

Overinvestment and fraud

We analyze the interactions between two managerial tasks: investing and revealing information. We assume that a manager can invest influencing the firm’s quality, then he reports this quality to investors. Whenever truthful reporting is not an equilibrium, the manager has incentives to overinvest relative to shareholders. Therefore, the potential for market manipulation is the key in understanding investment policy; it is the desire to manipulate prices that leads to inefficient investment. Also, more manipulation occurs when the manager is in control, so prices are less informative. Finally, we show that the manager is better off with an exogenous reporting policy.     

Endogenous Technological Spillovers: Causes and Consequences

We develop a new approach to endogenizing technological spillovers. We analyze a game in which firms can first invest in cost-reducing R&D, then compete on the human-capital market for their knowledge-bearing employees, and finally enter the product market. If R&D employees change firms, spillovers arise. We show that technological spillovers are most likely when they increase total industry profits. We use this result to show that innovation incentives are usually stronger for endogenous than for exogenous spillovers and that endogenous spillovers may reverse the result that innovation incentives are stronger under quantity competition than under price competition. Finally, we explore the robustness of our results with respect to contractual incompleteness and the number of R&D workers.     

Quality Diversity and Prices in Markets for Experience Goods

We analyze vertical product differentiation in a model where a good’s quality is unobservable to customers before purchase, a continuum of quality levels is technologically feasible, and minimum quality is supplied by a competitive fringe of firms. After purchase the true quality of the good is revealed. To provide firms with incentives to actually deliver promised quality, prices must exceed unit variable costs. We show that for a large class of customer preferences there is “quality polarization,” that is, only minimum and maximum feasible quality are available in the market. For the case without quality polarization we derive sufficient conditions for the incentive constraints to completely determine equilibrium prices, regardless of demand, for all intermediate quality levels.     

Heterogeneous players in a Cournot model with differentiated products

In this article, we analyse a duopolistic Cournotian game with firms producing differentiated goods, marginal costs are constant and demand functions are microfounded. We consider firms adopting different decisional mechanisms which are based on a reduced degree of rationality. In particular, we assume that a firm adopts the local monopolistic approximation approach, while the rival adjusts its output level according to the gradient rule. We provide conditions for the stability of the Nash equilibrium and investigate some bifurcation scenarios as parameters vary. The main finding of the article is that both a high level and a low level in goods differentiation may have a destabilising role in the system.     

Economics of total quality management

This paper presents two models of the economics of total quality management. In the first, the concept of quality management is viewed as a technological innovation that requires investment. To reduce cost and improve quality, firms must make investments that are largely sunk. The effect of market competition on quality related technology investments is studied. Several results follow. With new quality technologies, price falls, quality rises and average cost declines. Firms must anticipate rivals' technology choices and the market prices when justifying quality technology investments. When all firms quickly adopt quality technology, returns of such investments are normal, that is, have a zero net present value. However, firms that do not invest in quality related technology are forced from the market. A firm that is faced by competitors that are slow to adopt quality related technology, can earn positive returns by early adoption. The firm invests more in quality related technology, and produces higher quality products, charges a higher price and earns higher profits than competitors. The firm's quality, price and profit advantages persist over time. In the second model, we show that firm value increases when customer satisfaction is used as an objective by aligning incentives. This explains the common use of customer satisfaction measures in TQM programs.     

Choosing the Quality of the Fit between Complementary Products

In this paper, I examine how firms should position their complementary products. I assume that there are two competing firms, each producing two complementary products. Each firm decides whether to employ strategies that enhance the quality of the fit (the degree of complementarity) between its pair of complementary products before competing in prices. The consumers have heterogeneous tastes for the four possible bundles. They are willing to pay a price premium in order to purchase a bundle from the same firm if this firm chose to make such bundle more attractive. I find that increasing the degree of complementarity between a firm's complementary products intensifies price competition and often leads to smaller profits. Only when complementarity‐enhancing strategies significantly increase the demand for a firm's matching bundle, does the firm benefit from employing them. The highest profits for both firms are obtained when both firms do not employ complementarity‐enhancing strategies. Deteriorating the quality of the fit between one's own and a rival's complementary products is never profitable.     

Vertical integration and disruptive cross‐market R&D

We study how vertical market structure affects the incentives of suppliers and customers to develop a new input that will enable the innovator to replace the incumbent supplier. In a vertical setting with an incumbent monopoly upstream supplier and two downstream firms, we show that vertical integration reduces the R&D incentives of the integrated parties, but increases that of the nonintegrated downstream rival. Strategic vertical integration may occur whereby the upstream incumbent integrates with a downstream firm to discourage or even preempt downstream disruptive R&D. Depending on the R&D costs, vertical integration may lower the social rate of innovation.     

Environmental management accounting in Europe: current practice and future potential

Abstract

We examine the impact of managerial financial reporting incentives on accounting quality changes around International Financial Reporting Standards (IFRS) adoption. A novel feature of our single-country setting based on Germany is that voluntary IFRS adoption was allowed and common before IFRS became mandatory. We exploit the revealed preferences in the choice to (not) adopt IFRS voluntarily to determine whether the management of individual firms had incentives to adopt IFRS. For comparability with previous studies, we assess accounting quality through multiple constructs such as earnings management, timely loss recognition, and value relevance. While most existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt, that is, voluntary adopters. We also find that firms that resist IFRS adoption have closer connections with banks and inside shareholders, consistent with lower incentives for more comprehensive accounting standards. The overall results indicate that reporting incentives dominate accounting standards in determining accounting quality. We conclude that it is unwarranted to infer from evidence on accounting quality changes around voluntary adoption that IFRS per se improves accounting quality.     

Open search strategies and firm performance: The different moderating role of technological environmental dynamism

Mainly driven by the rapid progress of the ‘open innovation’ paradigm, previous research has devoted considerable efforts in investigating how the degree of openness to external knowledge influences firms׳ innovation performance. However, much less is known about its impact on performance at the firm level. Moreover, the question of which open search strategy is more suitable depending on environmental features is unresolved. We focus on breadth and depth as two distinct open search strategies and claim that, besides their different benefits in terms of learning and innovation, it is also necessary to consider their costs. Based on survey data of 248 high-technology manufacturing Spanish firms, this study extends recent research about the context dependency of openness effectiveness by showing that the effect of these two open search strategies on perceived firm performance is contingent with technological environmental dynamism in a reverse fashion. While search breadth is found to be positively associated with performance in less technologically dynamic environments, it seems to hurt performance in more dynamic contexts. On the contrary, while search depth is found to have a positive effect on performance in highly technologically dynamic environments, it appears to harm firm performance in more stable contexts.     

Negative Incentives and Regulatory Capture: Noncompliance with Price Ceilings on Essential Medicines in India

Nonmarket scholars have paid limited attention to noncompliance as an alternative strategy to capture regulators; yet noncompliance is particularly consequential given its potentially significant negative externalities. We exploit rich data on price ceilings introduced in India in 2013 on 255 essential medicines to test whether noncompliance by other firms drives the focal firm's noncompliance decision. Our results indicate that noncompliance by other firms, particularly those with larger products in the market, is positively associated with a focal firm's noncompliance. The focal firm's scope and sales positively moderate this relationship. Overall, our study indicates that firms are more likely conclude that the potential benefits of regulatory capture using negative incentives outweigh the potential financial and social costs in the presence of a greater number of firms that are already noncompliant. As such, our study draws attention to negative incentives as an important yet largely overlooked nonmarket strategy.     

Advertising as Information: Matching Products to Buyers

We consider communication of quality via cheap talk and dissipative advertising expenditures, when consumers have heterogeneous tastes for quality, and price information must be acquired through costly search. For search pods, cheap talk communicates quality when fixed costs are roughly constant across quality levels, while if fixed costs vary greatly with quality, then firms having the higher fixed-cost quality level use dissipative advertising. For experience goods, quality can be communicated by cheap talk in a range where low-quality firms have greater fixed costs, and low-quality firms use dissipative advertising if their fixed costs are greater still.     

Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium

Competitive search entails both commitment to and advertising of pay-off relevant aspects of market participants. This paper considers incrementally the implications of each in a labor market where both workers and firms invest prior to market entry. A wide range of institutional arrangements are addressed within the same general framework. When the characteristics of jobs or workers are advertised the efficient outcome pertains. Commitment without advertising typically leads to market unravelling: the Diamond paradox. But, whenever wages and human capital are advertised, firms become residual claimants; the private and social returns to investment coincide. Absent wage commitment, the Hosios condition implies efficiency when investments are advertised.     

How to get firms to invest: A simple solution to the hold-up problem in regulation

Abstract. Many governmental programs are effective only if firms make costly investments. The inability of authorities to precommit to a regulatory scheme creates incentives for firms not to invest and to hold-up the regulator. This paper describes a simple subsidy/tax scheme embedded in a four-stage mechanism that solves the hold-up problem. We design a self-financing subsidy/tax scheme which benefits a complying firm at the expense of a non-complying firm. In order to be credible, the subsidy and tax rates must maximize social welfare for any combination of investment decisions. We show that there exists a unique subgame perfect equilibrium in which all firms invest and no actual implementation with subsidies and taxes is required. We discuss in which cases the mechanism can work under incomplete information. Received: 30 December 1998 / Accepted: 12 October 2001     

Dynamics in research joint ventures and R&D collaborations

We investigate the short- and long-term effects of different types of R&D collaborations on firms, consumers, and the industry. To that end, we consider a differentiated-product market in which firms compete à la Bertrand and invest in process innovation in order to lower the production cost over time. Investments are stochastic and there can be cartelization or competition strategies among firms at the moment of making the decision on the amount to invest in R&D. Our results show that in equilibrium, the long-run welfare is larger under a research joint venture than under other environments. Discounted present value profits increase with the level of the spillover but there are asymmetries that depend on the firms’ asymmetry on marginal costs.     

New product introduction with costly search

In the usual model of product market search, a low search cost can turn out to have detrimental incentives on new product introduction as the low search cost erodes firms’ market power, attenuating the profit from innovation. This paper studies a model of monopolistic competition with costly search, where the point of departure is that of a fixed cost of initiating search. In this environment, a low search cost could turn out to be favorable to innovation. At a low search cost, more consumers may decide to start searching, possibly resulting in higher profits for firms in the larger market, despite the erosion of market power.