Multidivisional firms, internal competition, and the merger paradox

Abstract.  Traditional modelling of mergers has the merged firms (insiders) cooperate and maximize joint profits. This approach has several unappealing results in quantity‐setting games, for example, mergers typically are not profitable for insiders, but are profitable for non‐merging firms (outsiders). We take a different approach and allow for a parent company that can play each insider off one another. In quantity‐setting games, with our approach mergers are profitable for insiders, unprofitable for outsiders, socially beneficial, and involve (in a non‐monopolizing merger) a small number of firms. Finally, we find that the optimal strategy depends on whether firms compete in quantity or prices. JEL classification: L000     

On the incentives for cooperative research

This paper analyzes incentives for cooperative research for firms competing in the product market. Contrary to the literature, we portray situations to show that non-cooperative R&D can occur even if the probability of success in R&D is large. We then model synergy in cooperative R&D and show that when the innovation size is large, cooperative research is likely to occur.     

Managerial incentives and the decision to hire managers in markets with public and private firms

This paper considers the managerial incentive contract when public and private firms compete in the same market. Social welfare is enhanced when all firms hire managers, but for different reasons than when all firms are privately owned. Incentives to hire managers differ in private and public firms; in equilibrium, only private firms hire managers.     

Search,selection, and shortage in an industry composed of labor-managed firms

Evolutionary models of an industry composed of labor-managed firms are constructed. In these models, search or selection processes—in the sense of Nelson and Winter—determine what production techniques are used. If certain types of subsidies are introduced into these models, shortage—in the sense of Kornai—results. How search and selection processes promote use of cost-minimizing techniques and how subsidies may stifle or deflect these processes is investigated through ten propositions. These propositions are applied to illuminate Yugoslavia's slow adjustment to increases in the relative price of oil.     

“Fifty in five”: The prospects for merger in the electric utility industry

By analyzing four case studies of merger attempts between electric utilities, we conclude that there are not strong incentives for a wave of combinations in the industry. Potential synergy gains do not provide a strong motivation since they are likely already being captured through joint ventures and coordination agreements. Those that still exist would most likely be distributed to rate payers by regulatory decisions. Managerial incentives of the bidder are countered by the desire of target management to remain independent. Potential gains to the financial community from a wave of mergers are large, but the regulatory process provides a dampening of this otherwise strong incentive.     

On price equilibrium with multi-product firms

In this paper, we provide a result that shows existence and uniqueness of Nash equilibrium in cases in which existing methods are problematic. This result is based on a theorem by Kellogg (Proc Am Math Soc 60:207–210, 1976) that provides conditions for the existence of a unique fixed point. We apply it to the simple logit discrete choice model and the CES representative consumer model, where asymmetric cost firms produce multiple vertically and horizontally differentiated products and compete in prices.     

Fractional integration and cointegration in merger and acquisitions in the US petroleum industry

This article employs methodologies based on fractional integration and cointegration to analyse the time-series properties of merger and acquisitions (M&A) activity and crude oil prices in the US from 1980 to 2012. Our results indicate that an increase in the crude oil price produces a significant increase in the M&A data between 2 and 3 months after the initial shock.     

论守信用的激励与反信用的约束

经济行为主体的利益一般难以隔离由他们相互间恪守承诺或者连弃承诺所带来的正负影响.而经济行为主体相互间基于利益的承诺及其兑现乃是信用本于社会行为规范的一般属性,这样的承诺及其兑现本质上即属于经济学意义的信用,且这样的承诺能否或能否完全兑现的问题同时即属于遵守或是违反信用的问题.一般而言.经济行为主体守信用与反信用的行为构成信用的一体两面.真实经济生活中信用关系无论是拟设的或者实有的,其债权主体准备或已经借出的信用具有对可能的债务主体反信用行为的高度敏感性、易受事实的债务主体反信用行为损毁的脆弱性、一经遭受反信用行为损毁即很难迅速修复的阻滞性.     

A nonparametric analysis of insufficient wage incentives in the Chinese health industry

ABSTRACT

This study provides empirical results on the insufficient wage incentives in the Chinese health industry, which may result in the poor productivity of high-ability medical personnel. We first propose a signaling game by capturing the progressive wage incentive in this industry. Then, we show that the model primitives are nonparametrically identified and estimable using recently developed methodologies related to measurement errors. Adopting a dataset from the China Household Income Project, we provide empirical evidence of the negative influence of insufficient wage incentives on the productivity of high-ability workers, especially those in higher job positions. As the number of high-ability workers in higher job positions is high, it is important to improve wage incentives in the Chinese health industry, especially for workers in higher job positions, to promote the productivity of high-ability medical workers.     

The industry life-cycle of the size distribution of firms

This paper analyzes the evolution of the distributions of output and employment across firms in U.S. manufacturing industries from 1963 until 1997. The firm size distribution changes significantly as an industry goes through stages of its life-cycle. The evolutions of the employment and output distributions also differ significantly, but display strong inter-industry regularities, including that the nature of the evolution depends on whether the industry is experiencing growth, shakeout, maturity, or decline. The observed patterns have implications for theories of industry dynamics and evolution.     

The tax advantage of public firms over private firms in the German household solid waste disposal industry

We measure the tax advantage of public firms over private firms, which operate at municipality level in the German household solid waste disposal industry. Public firms with sovereign duties pay no taxes, but equivalent private firms have to. In a simple risk-free setting, we develop a measure of the percentage difference of the charges of both types of firms demanded under their respective tax treatments. We model a cost-covering public firm and a net present value maximizing private firm. For sensible model parameters from the German waste disposal industry the private firm has to demand an about 16% to 18% higher charge. The by far biggest impact on the measure has the value added tax, with revenues as a much larger tax base than profits. Tax savings, which directly affect pre-tax profits, only alleviate the disadvantage bit. There is some evidence that at least one type of private firms—that is, private law firms that are also majority privately owned, are productive enough to overcome the tax advantage of public firms and be able to charge a lower price than public firms.     

On the provision of incentives in finance experiments

Monetary incentives are a procedural pillar in experimental economics. By applying four distinct monetary incentive schemes in three experimental finance applications, we investigate the impact of an incentive scheme’s salience on results and elicit subjects’ perception of the experienced scheme. We find (1) no differences in results between salient schemes but a significant impact if the incentive scheme is non-salient. (2) The number of previous participations has a significant impact on the perception of the incentive scheme by subjects: it strongly correlates with subjects’ motives for participation, positively contributes to subjects’ understanding of the incentive scheme, but has no influence on subjects’ motivation within the experiment. (3) Subjects favor more salient over less- or non-salient schemes in the gain domain and negatively evaluate high salience in the loss domain.     

On the incentives to provide fuel-efficient automobiles

We argue that the provision of more fuel-efficient cars necessitates specific aerodynamic shapes. We show that the presence of this technological constraint may reduce the incentives to provide fuel efficiency. In equilibrium, cars become more similar and aerodynamic as fuel prices increase. However, the provided level of fuel efficiency falls short of the social optimal one such that a fuel-economy standard is welfare-enhancing.     

Multinational experience and the creation of linkages with local firms: evidence from the electronics industry

This paper focuses on multinational companies' creation of linkageswith local firms in the electronics industry. Evidence is drawnfrom a novel data-set, covering international operations ofthe top European and US electronics companies, over the period1984–95. Econometric tests are provided to highlight howfirms' multinational experience, measured by the extent of theirpresence in foreign countries, affects cooperative agreements,as opposed to licensing and foreign direct investments. It ishighlighted that multinationals' subsidiary accumulation hasa positive and significant impact on collaborative linkageswith local firms. This contrasts with the transaction cost viewunderlying most market-entry literature, but is consistent witha dynamic efficiency perspective which emphasises the role oflinkages in learning and knowledge accumulation and exploitation.     

Indigenous technological capabilities,emerging market firms and the aerospace industry

While emerging market economies have developed significant technological capabilities and increased their share of global value-added in aerospace, they have done so largely through utilising foreign direct investment (FDI) and offset arrangements to enter supply chains that remain dominated by European and American firms. The paper examines whether emerging markets are developing indigenous technological capability in aerospace technologies. Drawing on patent data from the Thomson Innovation database, the study seeks to understand whether anchor tenant capability is indeed forming in emerging markets. A tech-mining method is applied. The study suggests that China, in particular, has dramatically increased its innovative capacity in the area. However, the data also demonstrate the significant advantages enjoyed by incumbent firms from Europe and the USA, suggesting that the complexity of aircraft R&D remains a formidable barrier that can only be surmounted by determined government policies and anchor firms equipped with substantial innovation capabilities.     

Industry dynamics: Foundations for models with an infinite number of firms

This paper explores the connection between three important threads of economic research offering different approaches to studying the dynamics of an industry with heterogeneous firms. Finite models of the form pioneered by Ericson and Pakes (1995) capture the dynamics of a finite number of heterogeneous firms as they compete in an industry, and are typically analyzed using the concept of Markov perfect equilibrium (MPE). Infinite models of the form pioneered by Hopenhayn (1992), on the other hand, consider an infinite number of infinitesimal firms, and are typically analyzed using the concept of stationary equilibrium (SE). A third approach uses oblivious equilibrium (OE), which maintains the simplifying benefits of an infinite model but within the more realistic setting of a finite model. The paper relates these three approaches. The main result of the paper provides conditions under which SE of infinite models approximate MPE of finite models arbitrarily well in asymptotically large markets. Our conditions require that the distribution of firm states in SE obeys a certain “light-tail” condition. In a second set of results, we show that the set of OE of a finite model approaches the set of SE of the infinite model in large markets under a similar light-tail condition.     

A spatial merger estimator with an application to school district consolidation

This paper develops a spatial merger estimator to explain political integration generally and then applies this method to a wave of school district mergers in the state of Iowa during the 1990s. Our estimator is rooted in the economics of matching and thus accounts for three important features of typical merger protocol: two-sided decision making, multiple potential partners, and spatial interdependence. Rather than simply explaining when a particular region is likely to experience a wave of political integration, our method allows us to explore the factors driving which specific subregional mergers take place. This allows us to explore how those districts that merge choose with which of their neighbors to do so. Our results highlight the importance of state financial incentives for consolidation, economies of scale, diseconomies of scale, and a variety of heterogeneity measures in this particular application. We also demonstrate the power of our estimator, relative to existing estimators, to detect a statistically significant role for heterogeneity factors. While our application is limited to school district consolidation, our method can be adapted to include the salient features of many spatial integration problems.     

Growth of new start-up firms: evidence from the Japanese manufacturing industry

This study investigates firm growth as the post-entry performance of new start-up firms. Using data on Japanese manufacturing firms founded during 1992–1996, the determinants of growth are identified among new start-up firms. The effect is examined, not only of firm-specific characteristics but also of entrepreneur-specific, industry-specific and local characteristics on firm growth. It is found that younger and small-sized firms are more likely to grow among the start-ups. It is also found that entrepreneur's age and educational background affect the growth of start-ups. It is not shown, however, that industry specialization induces the growth of start-ups.     

Directed search with heterogeneous firms: an experimental study

Directed search models labor markets where workers observe wages before deciding where they will apply. This paper tests this model for the case of heterogeneous firms in a laboratory experiment. The theory predicts that more productive firms offer higher wages and workers apply more often to these higher wages. In consequence, more productive firms are more likely to match and the market is more efficient than the prediction of an alternative model where search is random. The main results of the experiment are that average firms offer wages that are close to or a little lower than the theoretical predictions but highly variable and workers apply more often to high offers but not to the extent predicted. The markets are no more efficient than random search predicts, because of the variation in wage offers.     

Challenging the dominant logic in the healthcare industry: the case of precision medicine

The study on the impact of precision medicine (PM) in its surrounding political and business milieu has burgeoned in recent years. Recent advances in biomedical sciences suggest that PM has the potential to fundamentally alter the existing business logic in the healthcare landscape and the relationship between how medical care is delivered and organised. While barriers and policy challenges to the introduction of pharmacogenomics into healthcare system are widely noted, relatively little is known about whether and to what extent PM alters or even destroys the dominant logics of the pharmaceuticals and diagnostics industry, which constitute the core segment of the PM. In this paper, the shifting nature of dominant logic in the field of PM is studied by means of qualitative analysis. Several dimensions are identified to help develop a better understanding of changing business models and collaborative network structures.