Choosing price or quantity? The role of delegation and network externalities

We consider a differentiated duopoly and endogenise the firm choice of the strategy variable (price or quantity) to play on the product market in the presence of network externalities. We model this choice by assuming both competition between entrepreneurial (owner-managed) firms and competition between managerial firms in which market decisions are delegated from owners to revenue-concerned managers. While network externalities are shown not to alter the symmetric equilibrium quantity choice arising in the no-delegation case, sufficiently strong network effects allow us to eliminate the multiplicity of equilibria under delegation and lead to a unique equilibrium in which both firms choose price.     

Strategic managerial delegation and cross-border mergers

The purpose of this paper is to clarify the relationship between the market structure in equilibrium and the most preferred structure with respect to each country’s social welfare and/or total social welfare, when all existing firms can freely merge with each other in an international oligopoly under the segmented market assumption in three cases: the case wherein all the firms are entrepreneurial and the cases wherein they use two different types of managerial delegation contracts. We focus our attention on the coincidence/non-coincidence between the equilibrium market structure (EMS) and the most socially preferred structure with respect to each country’s social welfare and/or total social welfare, as each firm’s production efficiency varies. When each firm’s production efficiency is relatively low, in all the three cases, the EMS coincides with the most socially preferred structure with respect to each country’s social welfare and total social welfare in a large area of the physical trade cost. On the other hand, when each firm’s production efficiency is relatively high, in the cases wherein they use the two different types of managerial delegation contracts, there exists an area of each firm’s production efficiency such that the EMS does not coincide with the most socially preferred structure with respect to each country’s social welfare and total social welfare. Therefore, as each firm’s organizational structure proceeds from entrepreneurial to managerial delegation, a more active merger policy is needed with respect to each country’s social welfare and total social welfare.     

Directed search with multi-vacancy firms

I construct a directed search model in which firms decide whether to enter a market and how many positions to create. Within this framework, the number of firms and the size of each firm are determined endogenously, wages play an allocative role in the matching process, and the frictions inherent in this process derive from the equilibrium behavior of workers and firms. I characterize the (unique) equilibrium. Comparative statics generate testable implications for cross-sectional variation in matching efficiency, as well as the dynamic behavior of vacancies and unemployment. Moreover, allowing for ex-ante heterogeneity across firms, the model can easily and naturally generate the observed relationship between firm size, wages, profitability, and hiring.     

Organizational Structure and the Choice of Price versus Quantity in a Mixed Duopoly

We consider the choice of price/quantity of a public and a private firm in a mixed differentiated duopoly. First, we study the way in which the strategic choice of the market variable is affected by different given organizational structures (managerial or entrepreneurial) of the public and the private firm. Second, we investigate how the price/quantity choice interacts with the endogenous choice of the organizational structure, thus determining a subgame perfect equilibrium at which firms choose to behave as price‐setters and to adopt a managerial structure.     

Extended Games Played by Managerial Firms

The issue of timing is addressed in a game between managerial firms. The choice over timing can be taken either by managers or by entrepreneurs. It is shown that (i) delegation drastically modifies the owners' preferences concerning the distribution of roles, as compared with the setting where firms act as pure profit-maximizers; and (ii) the ability of moving first in the market game entails that, at least observationally, the owner of the leading firm prefers not to delegate. I show that the choice of the timing by managers entails the same profit that owners would achieve by specifying the timing in the delegation contract.
JEL Classification Numbers: D43, L13.     

The common pool of transitional profits

Transitional profits are above-normal profits that can be earned by firms as a result of changes in market conditions or entrepreneurial innovations of the firm. They are a common pool and are competed away by firms that enter profitable markets or imitate the innovations of profitable firms. The economics literature provides two conflicting views on transitional profits. One is that above-normal profit is a sign of economic inefficiency and is the result of either monopoly power or disequilibrium. The other is that economic profit is necessary for economic efficiency because profit is the lure that pushes entrepreneurs to allocate resources more efficiently. Both views are considered, along with an analysis of whether this common pool resource is competed away too rapidly, as the theory of common pool resources would suggest.     

PROFITABLE STRATEGIC DELEGATION WITH CONJECTURAL VARIATIONS

Firms delegate strategic decisions to managers because they find it profitable to do so. In the product market, when agents make conjectures about the reaction of their rivals to marginal changes in their own strategies, the set of equilibriums can be enlarged with respect to the case of no conjectures. This paper takes a duopolistic linear market parameterization where firms selling differentiated products can delegate either price or output decisions to managers. We show that it is a dominant strategy for firms to delegate no matter whether firms are Cournot or Bertrand competitors, although the equilibrium is not necessarily efficient. Futhermore, in equilibrium Cournot competition is more profitable for firms than Bertrand competition. Finally, requiring consistency in conjectures yields the same outcome no matter what type of strategic interaction and managerial choice there is on the part of firms.     

Understanding the size and profitability of firms: The role of a biological factor

In a large sample of entrepreneurs, 2D:4D (second-to-fourth digit) ratio and managerial performance are studied. Entrepreneurs with lower ratio manage larger firms, manage larger firms when acquire control and experience faster average growth. Firms run by high prenatal testosterone entrepreneurs have lower profitability as measured by return on assets and return on sales. Prenatal testosterone is correlated with elicited measures of entrepreneurial skills, like work effort and optimism and the latter are correlated with firm size. This evidence suggests entrepreneurial ability has a biological component and is consistent with models of the size distribution of firms based on entrepreneurial ability.     

CEO international experience and foreign IPOs

This paper examines listing location as a managerial decision by using a sample of IPOs of Chinese entrepreneurial firms in mainland China, the United States and Hong Kong. We find that Chinese entrepreneurial firms managed by CEOs with international experience are more likely to undertake foreign IPOs, especially those returned from countries with more advanced legal institutions and those operating in high-tech industries. The credibility crisis for Chinese firms in 2010 switched the focus of foreign IPOs from the US to Hong Kong. These results are consistent across returnee CFOs and other senior executives with international experience.     

创业导向对创新绩效的影响:顾客授权与开放式创新视角

开放经济下企业往往利用开放式创新范式进行技术创新。从开放式理论视角探讨创业导向对创新绩效的作用机制,重点探讨顾客授权的调节作用。以开放式创新为中介变量,以顾客授权为调节变量,构建一个被调节的中介作用模型。采用259家制造业企业的调查问卷数据检验研究假设,结果表明:开放式创新部分中介了创业导向与创新绩效间关系,顾客授权正向调节创业导向与开放式创新间关系以及开放式创新与创新绩效间关系,顾客授权与创新绩效呈正相关关系。最后,提出了管理建议和未来研究方向。     

The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly

Privatisation is driven by the belief that public ownership is cost inefficient, in particular under monopoly. However, some theoretical and empirical studies have questioned whether privatisation will necessarily lead to efficiency gains. This paper focuses on the impact of ownership when owners can be either active or passive. Active owners decide on output, whereas passive owners delegate this decision to a risk-averse manager. It turns out that managerial slack as reflected in the marginal costs will actually be the same or higher in a private monopoly than under public ownership. The impact of entry is theoretically ambiguous, but an increased number of firms in an oligopoly may lead to lower efficiency.     

Market access and technology adoption in the presence of FDI

This paper theoretically investigates whether improved access to the domestic market speeds up new technology adoption by foreign firms. Foreign firms choose between exporting and foreign direct investment (FDI) to serve the domestic market. If two firms compete in the domestic market, multilateral liberalization of FDI or the realization of multilateral free trade may deter or delay technology adoption, while they always promote and accelerate technology adoption if only a single firm serves the domestic market. Technology adoption can be quickest and consumer welfare greatest when the fixed cost of FDI and the trade costs are neither very high nor very low. Preferential liberalization of FDI promotes the technology adoption of the targeted firm but may not benefit consumers because it discourages technology adoption of the non-targeted firm.     

Determinants of the acquisition of listed versus unlisted firms in different legal and institutional environments

The aim of this article is to analyse the determinants of the decision to acquire unlisted rather than listed firms in different legal and institutional environments. We estimate a probit model considering the mergers and acquisitions (M&As) announced by European listed firms (19 countries) that acquires worldwide listed or unlisted firms (36 countries) in the period 2002–2007. Our results show that managerial opportunism is a determinant in the acquisition of listed firms, occurring with greater probability in acquiring countries with low shareholder and minority shareholder protection. Information asymmetry is another relevant determinant that promotes the acquisitions of unlisted firms. Furthermore, the less developed the capital market in the country of the acquired firm, the greater the probability of acquisitions of unlisted firms. This article contributes to the M&A literature by showing that in addition to managerial opportunism and information asymmetry, the legal and institutional environments in both the acquiring and the target countries are also relevant aspects explaining the decision of whether to acquire listed or unlisted firms.     

EFFECTS OF ASYMMETRIC INFORMATION WITHIN A FIRM ON OLIGOPOLISTIC MARKET OUTCOMES

I analyze the implications of the Laffont–Tirole type agency problems on oligopolistic market outcomes. In the model, a firm's marginal cost is decreasing in managerial effort and is subject to an additive shock. Both managerial effort and the realization of the shock are a manager's private information. A firm first offers a menu of contract to its manager, and then competes in the product market. As in the model of single principal and single agent, the incentive contracts implement efforts that are distorted downward relative to full information. In this model, with multiple agency relationships, an additional source for upward distortion of effort emerges as a result of the interaction in the product market. The results are robust to whether firms compete in price or quantity.     

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.     

Strategic Rivalry With Spillovers Within Segmented Versus Integrated Markets

We consider a two-stage game with firms investing in R&D in the first stage while competing [a] la Cournot in the second stage. The firms are located in two countries, which are either segmented or integrated. R&D spillovers occur between firms located in the same country as well as between firms located in different countries.

We first examine the consequences of market integration on the impact of national and international R&D spillovers on innovative efforts, effective R&D, profits and total welfare. Comparing the resulting equilibrium levels, we subsequently conclude that market integration always leads to higher R&D investments and output if international R&D spillovers are limited, while the welfare consequences are ambiguous. Finally, we also analyze the welfare maximization problem of a ‘constrained social planner who can only decide on the level of R&D spillovers.     

Firms as knowledge repositories

One reason firms exist is to serve as knowledge repositories. Firms compete against other firms and need profits to survive. Firms must be entrepreneurial to discover and act on profit opportunities. Knowledge required to spot profit opportunities is disbursed among economic actors and often is tacit knowledge that can only be obtained by those in close proximity. This gives rise to agglomeration economies, which can be leveraged within firms. In a competitive economy people have an incentive to keep knowledge from people in other firms, but to share it with those in their firm. One role of the firm is to act as a repository of knowledge for those within the firm’s boundaries, and to lower the cost of obtaining knowledge about profit opportunities. Entrepreneurs need firms to contain and capture the profits from their innovations.     

Incentives and Female Entrepreneurial Activity: Evidence from Panel Firm Level Data

The goal of this paper is to investigate entrepreneurial activity and to analyze the incentives of female participation in the labor market. Female entrepreneurial activity is closely related to social and economic issues. They represent a driving force, active and effective members of economic, political, professional and managerial societies. On the other hand, they have families with serious maternal responsibilities and inelastic household obligations, roles which they are trying to balance effectively. To that reason, specific actions and carefully designed measures are essential in encouraging and promoting them to engage into entrepreneurial activity. To investigate the issue of entrepreneurial activity, personal characteristics and various motivation incentives are examined in order to determine the major factors that may influence female entrepreneurial spirit in Greece. Obtaining data from 1600 industrial firms located in the prefecture of Piraeus over the period 1999–2009, this study makes use of the panel methodology approach to provide evidence about the main determinants of female entrepreneurship. What is found is that a combination of pull and push motives and effective mentoring framework, in addition to a set of personal characteristics such as risk of failure, educational level, creativity, innovativeness, ambitiousness and marital status, seem important for the encouragement of women entrepreneurship in Greece to start up a new business. The implications seem very substantial for the formulation and implementation of effective support policies and measures for female entrepreneurs’ vital start up and early stage period.     

Free and second-best entry in oligopolies with network effects

We compare the number of firms in equilibrium in a Cournot industry with positive network effects and complete compatibility, under free and second-best entry. Under free entry, the firms decide whether to enter the market or not; in the second-best problem, the number of firms is established by the regulator to maximize social welfare (the regulator controls entry but not production). We show that when individual equilibrium output decreases with entry (business-stealing competition), free entry may lead to more or less firms than the second-best problem. This contrasts with the standard (nonnetwork) Cournot oligopoly model, wherein with business-stealing competition, free entry leads to an excessive number of firms compared with the second-best solution.     

The Strategic Choice Of Managers And Managerial Discretion

Managerial discretion is likely to be beneficial to shareholders because of strategic cross-effects in an oligopoly. In certain circumstances, shareholders deliberately retain managerial discretion in equilibrium even when the reduction of managerial discretion is cost free. It is found that the positive effect of managerial discretion on profits can only be created by power-building (shirking) managers if quantity (price) competition prevails in the market. Consequently, the dominant strategy for the owners of a quantity- (price-) competing company is to employ a power-building (shirking) manager. The strategic effect of such a match between the type of manager and the form of competition exists for all managerial decisions as far as firms interact with each other.