Market efficiency and NCAA college basketball gambling

The betting market for NCAA college basketball is examined from the 1996–97 season through 2003–04. In the overall sample, market efficiency cannot be rejected. For big favorites, specifically those favorites of 20 or more, a simple strategy of betting the underdog in these games is shown to reject the null hypothesis of a fair bet since the underdog wins more than implied by efficiency. This bias appears to be the same as in other sports. The home-team bias in college basketball is shown to be the opposite of the other sports, however, since big favorites win more often than implied by efficiency. Potential reasons for this bias such as NCAA tournament incentives and uniformity of playing conditions are discussed.     

Innovation Strategy and Entry Deterrence

We model an incumbent’s decision to pursue radical or incremental innovation when facing a rival entrant. The radical innovation may yield lucrative financial returns but entails significant technological and market‐related uncertainties. It is also particularly attractive to the rival entrant: if the market for it pans out, such an innovation obsoletes the existing technology and any incremental improvements to it. Each firm has its own assessment of the market potential for the radical innovation, and the reliability of these market forecasts can differ. We show that when the entrant’s market‐assessment capability is weak, the incumbent will pursue incremental innovation and postpone its plans to develop radical innovation even when it thinks highly of the market potential for the radical innovation. The incumbent does so to avoid validating the high market potential to the entrant, who may otherwise be encouraged to invest aggressively. The incumbent thus prefers to look “soft” with respect to its innovation strategy in order to discourage entry. Even if its innovation strategy is not observable, we show that an incumbent that assesses the commercial potential for a radical innovation favorably may pursue an incremental path and communicate its plans publicly; this strategy serves to reduce entry by affecting the entrant’s beliefs about the market potential of the innovation. Finally, we extend the model to investigate the entrant’s decision to communicate its innovation intentions. We find that the entrant communicates its plans to aggressively pursue radical innovation only if the incumbent’s market‐assessment capabilities are strong. In doing so, the entrant acts preemptively to discourage the incumbent from pursuing the radical innovation, and is less concerned with validating market potential.     

Effects of Temporary Regulation of Asymmetric Access Charges in Telecommunications

In a liberalized telecommunications market, an incumbent possesses several advantages over any entrant. It has been claimed that in such a market environment, there should be regulation of asymmetric access charges between an incumbent and an entrant. In this paper, we show that asymmetric access charges should be imposed temporarily but not permanently. That is, there should be deregulation once the entrant is fully competitive with the incumbent. This is because temporary regulation accelerates corporate investment and enhances economic welfare. In addition, when the competitive market environment is most intense under temporary regulation, investment timing is at the earliest point, which maximizes consumer surplus. Copyright © 2015 John Wiley & Sons, Ltd.     

Audit market structure and related changes in Taiwan: the effects of CPA qualification changes and mergers

There are four material structure changes over the certified public accountants (hereafter the CPA) industry in Taiwan since 1988. They are the relaxation of CPA qualification examinations in 1988, the merger of KPMG and Cooper & Lybrand (C&L) in 1999, the reduction of CPA examination pass rates in 2001, and the merger of T. N. Soong (TNS) and Deloitte & Touche Taiwan (D&TT) in 2003. Thus, this study investigates how the four events make impact on the market concentration of CPA industry and the market competition type. Empirical data are obtained from the Census Report of Public Accounting Firms in Taiwan (1989–2003). Main findings show that the Big international accounting firms dominate the majority of the audit market. Besides, the Big international (or Big Four) market concentration during 1992–1997 is lower than that in other periods after loosing the CPA examination pass rates since 1988. Since tightening up of CPA examination pass rates in 2001, the Big international (or Big Four) market concentration display an increasing trend. Finally, accounting firm mergers in 1999 and 2003 have all contributed to the increase of market concentration of international (or Big Four) accounting firms.     

Regional information and market efficiency: the case of spread betting in United States college football

Using game results over a seven year span (1999–2006), we find that United States college football teams in arid regions “win” against the spread in 56.64% of games in which they host a team from a humid region. This result provides statistically significant evidence for both weak and strong form inefficiency in the spread betting markets of such games. By examining other cases of intraregional and interregional competition within the sport, we conclude that this inefficiency does not arise from the effects of travel or home field advantage. Rather, the result indicates that climate aridity is an observed characteristic for which college football betting markets do not accurately control. It is quite rare to find strong form market inefficiency arise from a single variable rather than from an elaborate, multivariable betting strategy. Therefore, the effect of climate aridity upon college football spread betting market efficiency can be characterized as dramatic. It is conjectured that remote market participants may need to “experience” certain types of relevant regional information, such as climate, to act in a market efficient manner.     

Hierarchies and information-processing organizations

This paper analyzes organizational structures that minimize information processing costs for a specific organizational task. Organizations consist of agents of limited ability connected in a network. These agents collect and process information, and make decisions. Organizations implement strategies – mappings from environmental circumstances to decisions. The strategies are exogenously given from a class of “pie” problems to be defined in this paper. The notion of efficiency is lexicographic: the primary criterion is minimizing the number of agents, and the secondary criterion is minimizing the number of connections between the agents. In this modeling framework, efficient organizations are not hierarchical for a large number of problems. Hierarchies often fail to exploit fully the information processing capabilities of the agents because in a hierarchy, subordinates have a single superior. Received: 1 December 1995 / Accepted: 11 October 1998     

Optimal pricing strategy for foreign market entry: a game theoretic approach

Given that pricing plays an important role in a company's international competitive strategy, researchers have long argued the need for theory building in the area of international pricing. This study develops an optimal pricing strategy for foreign market entry using a game theoretic framework. The proposed model assumes two firms, a local incumbent and a foreign entrant, competing in a market. Consumers know the quality of the incumbent's offering, but do not know how it compares to that of the foreign entrant's. Based on these assumptions, and using the theory of inference making, we propose an upward price distortion by the entrant firm as an optimal entry strategy under incomplete information. The paper presents a game theoretic derivation to establish that the game has a unique intuitive separating equilibrium where the entrant firm stands to gain by engaging in upward price distortion to signal high quality to consumers. Copyright © 2006 John Wiley & Sons, Ltd.     

Exact decomposition of the Fisher ideal total factor productivity index

Decompositions of total factor productivity (TFP) shed light on the driving factors behind productivity change. We develop the first exact decomposition of the Fisher ideal TFP index which contains no debatable mixed-period components or residuals. We systematically isolate five effects of (1) technical change, (2) technical efficiency, (3) scale efficiency, (4) allocative efficiency, and (5) price effect. The three efficiency components (2–4) represent the efficiency of achieving a given target point. Components (1) and (5) capture the changes of the target point. While the technical change component is well-established, changes in the relative input–output prices can have real effects on the scale and scope of the target. Such changes are captured by the new price effect component (5). The new decomposition is compared with existing decompositions both in theory and by means of an empirical application to a panel data of 459 Finnish farms in years 1992–2000.

Timing of price clustering and trader behavior in the foreign exchange market: evidence from Taiwan

In this paper, I use a unique proprietary dataset from the foreign exchange market to examine the existing hypotheses on price clustering. I find that market uncertainty plays an important role in price clustering. Moreover, since trading behavior changes under different market conditions, market timing also affects the likelihood of price clustering. The results support both the price resolution hypothesis (Ball et al. J Futures Mark 5:29–43, 1985) and the negotiation hypothesis (Harris Rev Financ Stud 4:389–415, 1991). Since the data covers the interbank foreign exchange market, which is the market for the professional bank dealers, the attraction hypothesis is less likely to be a plausible explanation for price clustering in the foreign exchange market.     

Rising productivity of Australian trading banks under deregulation 1986–1995

Productivity of four major trading banks and six regional banks is investigated using Malmquist productivity indices in the deregulated period 1986–1995. The principal findings indicate an overall rise in total productivity driven more by technological progress than technical efficiency. Performance of major trading banks on technical efficiency is similar to that of regional banks but higher on technological progress. Distinguishing between improvement in technical efficiency and technological change is significant for policy formulation. Technological innovation can be construed as a sign of dynamic efficiency where banks take advantage of new cost-effective technologies and pursue product and market development.     

Competitive market equilibrium under asymmetric information

This paper studies the existence of a competitive market equilibrium under asymmetric information. There are two agents involved in the trading of the risky assets: an “informed” trader and an “ordinary” trader. The market is competitive and the ordinary agent can infer the insider information from the price dynamics of the risky assets. The insider information is considered to be the total supply of the risky assets. The definition of market equilibrium is based on the law of supply-demand as described by a rational expectations equilibrium of the Grossman and Stiglitz (Am Econ Rev 70:393–408, 1980) model. We show that equilibrium can be attained by linear dynamics of an admissible price process of the risky assets for a given linear supply dynamics.      

Measuring technical and allocative efficiencies for banks in the transition countries using the Fourier flexible cost function

The transition economies are known to have quite different market structures from the market economies. State-owned banks accounts for a major part of the financial sector in East European countries before the transition period. Since the input prices of the sector are frequently under the control of those governments, the misallocated resources may incur the loss of economic efficiency. This paper attempts to gauge the technical and allocative efficiency using unbalanced panel data of 340 banks from 14 transition countries under the framework of the Fourier flexible shadow cost function. Accommodating technical and allocative efficiencies simultaneously, as suggested by Atkinson and Cornwell (Int Econ Rev 35:231–243, 1994a) and Kumbhakar and Wang (J Econom 134:317–340, 2006a), avoids potential specification errors and leads to consistent parameter estimates. The average total cost savings resulting from greater technical and allocative efficiency are around 28.31 and 7.13%, respectively. Foreign-owned banks are found to be the most economically efficient. The enforcement of financial liberalization does gradually improve upon the sample banks’ technical efficiency. The allocative inefficiency arises from over capitalization and excess funds. Scale diseconomies appear to prevail in the sample states with a few exceptions.     

竞争企业的技术许可与市场进入策略研究

本文对在位企业和潜在进入企业同时选择技术许可费并决定是否进入市场的策略进行了分析和讨论。我们证明如果在位平台企业收取的许可费小于某一临界水平,则潜在进入企业的的最优反应是不进入;如果收取的许可费大于某临界水平,则进入企业的最优反应是进入。另外,如果在位平台企业的初始网络规模和网络外部性足够强,则在位企业选择垄断的技术许可价格,并且进入企业选择不进入。如果初始网络优势不是很大,则潜在进入者的出现使得在位企业会降低技术许可费,以形成进入壁垒。     

Implementing efficient market structure

Abstract. This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke–Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms avoid budget deficits and prevent excessive entry. Received: 7 May 2001 / Accepted: 24 June 2002 We would like to thank seminar participants at Bonn and Berlin, in particular Peter Bank, Wieland Müller, and Urs Schweizer, the two anonymous referees, and the associate editor for most useful and exceptionally detailed comments. Financial support was received by the Deutsche Forschungsgemeinschaft, SFB 373 (“Quantifikation und Simulation ?konomischer Prozesse”), Humboldt–Universit?t zu Berlin.     

Are Sunk Costs a Barrier to Entry?

The received wisdom is that sunk costs create a barrier to entry—if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.     

Matching in local labor markets: a stochastic frontier approach

This paper investigates the technical efficiency of labor market matching from a stochastic frontier approach. The true fixed-effects model (Greene J Prod Anal 23:7–32, 2005a; J Econom 126:269–303, 2005b) is utilised in order to separate cross-sectional heterogeneity from inefficiency, and inefficiency terms are modelled following Battese and Coelli (Empir Econ 20:325–332, 1995). The data set consists of almost 17,000 observations from Local Labor Offices (LLOs) in Finland. According to the results, there are notable differences in matching efficiency between regions, and these differences contribute significantly to the number of filled vacancies. If all regions were as efficient as the most efficient one, the number of total matches per month would increase by over 23%. The heterogeneity of the job-seeker stock is an important determinant of matching efficiency: the weight of the composition of the job-seeker stock in the inefficiency terms is on average 85%.

Are some Indian banks too large? An examination of size efficiency in Indian banking

In this paper we use data from the years 1997–2003 to evaluate the size efficiency, as distinct from scale efficiency, of Indian banks. Following Maindiratta [Maindiratta A (1990) J Econ 46:39–56] we consider a bank to be “too large” if breaking it up into a number of smaller units would result in a larger output bundle than what could be produced from the same input by a single bank. When this is the case, the bank is not size efficient. Our analysis shows that many of the banks are, indeed, too large in various years. We also find that often a bank is operating in the region of diminishing returns to scale but is not a candidate for break up.

A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China

This paper is an extension of the metafrontier Malmquist productivity index, which takes into account the effect of scale efficiency change in its decomposition for both the non-parametric and parametric frameworks. Meanwhile, the ‘catch-up’ in the index is also disintegrated as two components: pure technological catch-up and frontier catch-up. An empirical application that uses unbalanced panel data of the Taiwanese and Chinese commercial banking industry is also conducted under a parametric framework. The results reveal that the adverse scale efficiency change is the key factor to inducing the inferior productivity growth seen in Chinese banks compared with Taiwanese banks, which spotlights the importance of the scale efficiency change term on productivity measures. It also provides one possible explanation for the recent hot issue about the motives for the two shores of the Taiwan Straits advancing financial openness to each other and mutually signing a banking Memorandum of Understanding.     

A data envelopment analysis of gas utilities' efficiency

This study examines the Natural Gas Policy Act of 1978 and Federal Energy Regulatory Commission (FERC) policies that culminated in Order 636 in 1992. The regulatory environment in which natural gas distribution utilities operate was altered. FERC policies forced local gas distribution utilities into an increasingly competitive environment. Restructuring of the industry may affect economic efficiency. Data Envelopment Analysis is used to examine the economic efficiency of gas distributors during 1975–94. Federal policy appears to lead to a reduction in scale due to restructuring and more competition. Reduced scale economies have not altered the economic efficiency of the utilities.     

Continuous-time mean-variance portfolio optimization in a jump-diffusion market

In this paper, we take up an approach of (Lindberg, in Bernoulli, 15(2):464–474, 2009) who introduced a new parameterization of the Black–Scholes model that allows for an easy solution of the continuous-time Markowitz mean-variance problem. We generalize the results of (Lindberg, in Bernoulli, 15(2):464–474, 2009) to a jump-diffusion market setting and slightly correct the proof and the assertion of the main result. Further, we demonstrate the implications of the Lindberg parameterization for the stock price drift vector in different market settings, analyse the dependence of the optimal portfolio from jump and diffusion risk and finally indicate how to use the method. We particularly also show how the optimal strategy can be obtained with the restricted use of historical data.