The Property Rights Theory of the Firm and Mixed Competition: A Counter-Example in the US Health Care Industry

We present a counter-example to the conventional property rights theory of the firm, which indicates that not-for-profit firms are incapable of directly competing against strictly profit-maximizing firms without the presence of barriers to entry, outside assistance, changing profit status or economies of scale and scope. We employ a modified Bertrand duopoly model of mixed competition in the health care industry to show that, even when these four conditions do not hold, not-for-profit firms may still be able to compete and possibly dominate the market. Consequently, market fundamentals, rather than market intervention, regulation or uncertainty, determine a not-for-profit provider's success or failure in the market. A necessary requirement is that the not-for-profit manager must care about non-pecuniary benefits but be willing to accept lower than normal returns. Moreover, under specific cost and demand conditions, a not-for-profit's ability to compete may actually be enhanced by increasing its production of non-pecuniary benefits.     

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.     

Wealth effects on cross-border acquisition firms from emerging economies

Cross-border acquisitions (CBAs), as a corporate expansion strategy, are being espoused by emerging market firms (EMFs) to overcome their competitive disadvantage at the global level. The objective of this paper is to analyse the wealth effects of cross-border acquisition announcement on the acquiring firms from emerging economies during the period of 2001–17. Wealth effects have been measured in terms of short-term change in equity prices (investors' reaction) around the public announcement of 553 and 125 overseas acquisitions by Indian and Chinese listed firms respectively. The investors' reaction to the acquisition of a foreign target has been captured using the event study methodology. Further, a disaggregated analysis has been conducted to gauge the impact of various deal-specific factors, the legal structure of the target firm and the development status of the target country on the wealth creation potential of a cross-border acquisition.Both Indian and Chinese investors have responded favourably to the announcement of international acquisitions as exhibited in significant and positive average abnormal returns of 0.71% and 0.23% respectively on the event day. Further, it is revealing to note that investors in these economies differ widely with regard to their perception pertaining to the method of payment and acquisition strategy. At the same time, the extent of wealth creation is higher when acquired firms are based in developed economies possessing high quality resources and advanced technology along with better institutional and regulatory milieu; Indian as well as Chinese markets have experienced larger abnormal returns on acquiring advanced vis-à-vis developing market firms.     

Firm Size,Wages and Production Technology

Large firms pay higher wages than small ones. In this paper, the employer-size wage effect is derived with the help of a simple Nash-bargaining model where size is captured by the extent to which the production technology exhibits economies of scale. It can be shown that under reasonable assumptions an increasing returns to scale technology leads to higher wages than a constant or decreasing returns to scale technology.     

Price and quality decisions by self-serving managers

We present a theory of price and quality decisions by managers who are self-serving. In the theory, firms stress the price or quality of their products, but not both. Accounting for this, managers exploit any uncertainty about the cause of market outcomes to credit positive results to the dominant, “strategic” factor and blame negative results on the other—as doing so is psychologically rewarding. The problem with biased attributions, however, is that they prompt biased decisions. We motivate this argument with evidence from one experiment and then develop a model to understand the cost of the bias under different market conditions. Counter to intuition, we find that firms in a competitive setting can profit from the self-serving nature of their managers.     

Climate change policy, market structure, and carbon leakage

The 1997 Kyoto Protocol on climate change obliges the industrialized countries to initiate the international effort of abating anthropogenic greenhouse gas (GHG) emissions. If such an initiative is to be taken, the associated competitive effects may lead to significant relocation of developed countries' energy-intensive production. This paper examines this issue. I adopt an oligopolistic structure combined with increasing returns to scale production technologies to represent the strategic interaction among the firms producing energy-intensive products. This representation is then embedded within a multi-regional computable general equilibrium model, which in turn is used for quantifying these relocational effects. The results suggest that significant relocation of energy-intensive industries away from the OECD may occur, depending on the type of market structure, with leakage rates as high as 130%, in which case GHG control policies in the industrialized countries actually lead to higher global emissions.     

Arbitrage risk and the cross-section of stock returns: Evidence from China

We demonstrate that arbitrage risk, constructed using three measures — noise trader risk, trading cost and information uncertainty — can predict the return of stocks cross-sectionally in China. The findings are broadly consistent even when out-of-sample tests are conducted using the Fama-MacBeth cross-sectional regression approach. We also construct hypothetical portfolios using the information arising from arbitrage risk and find the existence of abnormal returns which is robust to the use of various portfolios constructed by re-sampling the observations through multiple approaches (e.g., by market capitalization and by book-to-market ratio). Lastly, we reconstruct our portfolios by considering the unique nature of the Chinese stock market (e.g., the dominance of individual investors). Our trading strategies again successfully obtain abnormal returns, suggesting that arbitrage risk can be useful to construct effective investment portfolios in China.     

A comparative analysis of the role of national culture on foreign market acquisitions by U.S. firms and firms from emerging countries

Do firms from emerging economies differ from U.S. firms in their foreign market acquisition strategies? A comparison of cross-border acquisitions by firms from the United States and 18 emerging countries shows that (1) firms from both the United States and emerging countries target countries that are culturally closer to their home countries, (2) a strong interaction effect occurs between market potential and cultural distance for emerging country firms as the market potential increases (i.e., at high market potential, firms from emerging economies are willing to overlook cultural distance), (3) no interaction effect occurs between market potential and cultural distance for U.S. firms, and (4) different cultural dimensions affect the market entry strategies of U.S. firms and firms from emerging countries.     

Increasing returns,monopolistic competition,and international trade

This paper develops a simple, general equilibrium model of noncomparative advantage trade. Trade is driven by economies of scale, which are internal to firms. Because of the scale economies, markets are imperfectly competitive. Nonetheless, one can show that trade, and gains from trade, will occur, even between countries with identical tastes, technology, and factor endowments.     

A Technological and Organisational Explanation for the Size Distribution of Firms

This paper combines insights from the literature on the economics of organisation with traditional models of market structure to construct a theory of equilibrium firm size heterogeneity under the assumption of a homogenous product industry. It is possible that configurations consisting entirely of small firms (run by entrepreneurs with limited attention) and with larger firms (using managerial techniques to substitute away these limits to allow increasing returns technologies to become profitable) can arise in equilibrium. However, there also exist equilibrium configurations with the co-existence of large and small firms. The efficiency properties of these respective equilibria are discussed. Finally, the implications of an expanding market size are considered.     

Uniform or spatially differentiated? Pricing Strategies for Information Goods under simultaneous and sequential decision-making in multi-market context

Product pricing has been one of the central issues in the field of marketing and consumer services for managers and researchers alike. However, pricing of information goods has not been paid much attention in literature. For information goods the marginal costs of production and transportation of information goods (online movies, video games, etc.) is almost zero. Hence, the pricing decisions need to be thought of purely in competitive profit maximizing terms. This paper proposes mechanisms for managers to evaluate and base their pricing decisions on rational frameworks that takes into account various situations when they enter a new market and when they are incumbent in a new market. This paper addresses the research gap of spatially differentiated pricing strategy for information goods that has not been studied in literature so far. We create stylized theoretical models under both, sequential and simultaneous decision-making conditions. We determine the equilibrium price and the equilibrium profit for the two firms for each of the four possible scenarios based on their pricing strategies. Our analysis reveals that the dominance of one pricing strategy over the other depends on product differentiation factor capturing joint effect of the product substitutability and consumer's price sensitivity under sequential decision making and the market size along with consumer's price sensitivity for simultaneous decision making. As an extension, we propose a generalized model demonstrating the uniform and spatially differentiated pricing strategies of the firms under simultaneous and sequential selection for multiple domestic and international markets.     

Can sustained growth be attained through trading exhaustible resources for foreign research?

We analyze the existence and the stability of a sustained balanced growth equilibrium (SBE) in a model of two non-homogeneous trading economies. A technological leader country which sells patents of new intermediate products in exchange for an exhaustible resource extracted by a technological follower trade partner. Considering a growth-essential resource, the ‘knife-edge’ assumption of exactly constant returns to scale (CRS) to manmade inputs can be alleviated, and the scale effects associated with R&D-based growth models overcome. A fully endogenous SBE is proven to exist, although its stability turns out to be a ‘knife-edge’ possibility. The long-run equilibrium is saddle-path stable assuming CRS in manmade inputs. Conversely, considering increasing returns to scale together with a completely specialized two-country trade, the equilibrium could be reached only if the two economies initially guard a particular relation, described by a particular subset of the state space.     

A closer look at the productivity advantage of foreign affiliates

In analyzing firm productivity in Belgium, this article shows empirically that both scale and efficiency contribute positively to the typical productivity advantage of foreign affiliates. Stochastic production frontier estimation using the translog functional form indicates that foreign subsidiaries exploit economies of scale more fully and benefit from better (transferred) technological capabilities than Belgian national firms (i.e., Belgian owned firms without subsidiaries abroad). Belgian multinational enterprises (MNEs), i.e., Belgian owned firms with at least one subsidiary abroad, resemble foreign‐based MNEs in possessing specific technological advantages. While the increasing globalization has facilitated the realization of scale effects across borders, this article shows that the development of technological capabilities/advantages is still a prerequisite for MNEs to compete successfully abroad.     

我国在稀有金属出口市场的市场势力研究——以钨矿、稀土金属为例

本文针对我国在稀有金属市场拥有资源优势而无话语权的现状,提出了"中国大市场悖论"这一论点,并以钨矿、稀土这两大稀有金属市场为考察对象,证实了这一悖论的存在。实证研究表明,随着钨矿的过度开采,我国钨矿生产的边际成本逐年上升。我国稀土生产已初具规模化生产特征。钨矿、稀土等出口市场都是非完全竞争市场。我国在20个钨矿出口市场中,仅在孟加拉、印尼、巴基斯坦、瑞士等少数市场拥有一定的市场势力。我国在17个稀土出口市场中,仅在香港、印尼和泰国市场拥有有限的市场势力。基于我国具有资源优势而无定价的现状,提出了在稀有金属开采市场提高资源税,培育稀有金属金融衍生品市场,构建稀有金属出口价格联盟等政策建议。     

Strategic Implications of Keeping Product Value Secret from Competitor’s Customers

Customers can sometimes learn unanticipated or hidden use value of a firm’s product whereas the non-customers remain uninformed about that extra value. A monopolist will increase its profit by informing the non-customers of its product’s hidden value. However, our analysis reveals that this may not be true when the firm faces competition in the market—the firm may actually make a higher profit if it keeps its hidden value secret from its competitor’s customers even if advertising to inform those customers is costless. This is because no advertising leads to information heterogeneity among consumers about the existence of the firm’s hidden value, which gives an incentive for both firms to continue targeting their own existing customers rather than poaching each other’s customers, alleviating price competition and increasing firms’ profits. This beneficial strategic effect of keeping some product value secret from the competitor’s customers can persist even when the firms anticipate the hidden value and compete more aggressively for customers in the early period. Our research suggests that firms can benefit from an “under-promise and over-deliver” strategy if they refrain from communicating their extra value to the competitor’s customers. Moreover, positive word of mouth about a firm’s product will not necessarily benefit the firm and can in fact make all firms worse off.     

The efficacy of marketing skills and market responsiveness in marketing performance of emerging market exporting firms in advanced markets: The moderating role of competitive intensity

Emerging market exporting firms in advanced economies must manage a highly dynamic landscape owing to factors such as changing market needs and fierce competition. Hence, these firms need to develop unique marketing skills for superior performance. Accordingly, this study draws on the resource-based and dynamic capability theory to empirically examine the role of marketing skills in developing a dynamic capability—market responsiveness—for improved marketing performance, and the changes in this relationship under highly competitive intensity. Using a sample (n = 98) of firms originating from an emerging market (Pakistan) mainly exporting to advanced markets (the United Kingdom, the United States or both), the findings show that marketing skills, positively mediated by market responsiveness, influence the marketing performance of such firms in advanced markets. The indirect relationship is positively moderated by a higher level of competitive intensity. This study extends the dynamic capability and export marketing streams of literature, particularly for emerging market exporting firms in advanced markets, and provides useful performance implications to export marketing managers.     

Market share as a source of market power: Implications and some evidence

This paper investigates the proposition that firms with a high market share enjoy a unique form of market power—“inherent product differentiation.” The analysis is based on a sample of 6492 banks, during the 1970s. Tests tend to control for market concentration, scale economies, and explicit product differentiation as factors influencing rates of return. Test results indicate that market share per se is a source of high profits, regardless of the level of concentration and after controlling for firm size. These findings question the Demsetz (1973) view that high profits of market leaders are due to efficiency rather than to some form of market power.These findings suggest that traditional market models that account only for a single price may be incomplete. The paper suggests a kind of simple model that would account for the existence of multiple prices in a market.     

Who should practice price discrimination using rebates in an asymmetric duopoly?

Price discrimination is generally thought to improve firm profits by allowing firms to extract more consumer surplus. In competition, however, price discrimination may also be costly to the firm because restrictive incentive compatibility conditions may allow the competing firm to gain market share at the discriminating firm’s expense. Therefore, with asymmetric competition, it may be the case that one firm would let the other firm assume the burden of price discrimination. We investigate optimal segmentation in a market with two asymmetric firms and two heterogeneous consumer segments that differ in the importance of price and product attributes. In particular, we investigate second-degree price discrimination under competition with explicit incentive compatibility constraints thus extending prior work in marketing and economics. Focusing on the managerial implications, we explore whether it would be profitable for either or both firms to pursue a segmentation strategy using rebates as a mechanism. We identify conditions under which one or both firms would want to pursue such segmentation. We find that segmentation lessens competition for the less price-sensitive consumer segment and that this results in higher profits to both firms. A key to understanding this result is that segmentation leads to consumer remixing. We establish the key result that if firms are asymmetric in their attractiveness to consumers, the disadvantaged firm in our model is more likely to pursue a segmentation strategy than its rival in equilibrium. We then ask whether this result prevails in practice. To this end, we explore competitive segmentation empirically and are able to verify that disadvantaged firms indeed pursue segmentation through rebates with greater likelihood.     

EXISTENCE OF A NONNEGATIVE EQUILIBRIUM PRICE VECTOR IN THE MEAN-VARIANCE CAPITAL MARKET

We derive a necessary and sufficient condition for the existence of a nonnegative equilibrium price vector under which the total demand and supply of each asset balances in the standard mean-variance capital market. Also, we give an explicit formula for such a price vector. This formula shows that the price of assets is an increasing function of , the weighted average of the requested rate of return of individual investors, which tends to infinity as approaches the expected rate of return on the market portfolio. Further, we construct a macroeconomic index which gives information about the soundness of the capital market.     

Consumption Externalities,Production Externalities and Indeterminacy

In this paper we show that consumption externalities reduce the degree of increasing returns needed to generate indeterminacy in a two‐sector optimal growth model. In equilibrium, consumption externalities operate as if the utility function is (close to) linear. If these externalities are strong, the minimum necessary increasing returns approach zero. Therefore, this paper—in a stylized fashion—provides an example of how microbehavior, i.e. interactions at the household level, can generate aggregate instability. Consumption externalities also help to eliminate the counterfactual cyclical behavior of consumption in the two‐sector model.