A Generalized Oligopoly Model

This paper generalizes and unifies the traditional quantity competition oligopoly models of Cournot and Stackelberg. Traditional oligopoly models predict that, under constant marginal costs, there will only be one market share (Cournot) or a single firm with a large market share and all others with the same market share (Stackelberg). Without altering the basic assumption set, in particular the assumptions of common marginal cost functions, perfect information and linear demand, the paper presents a general model that may be useful to explain many real‐life situations of oligopoly competition, where many different market shares may coexist. Finally, it is shown that certain existing social welfare results are robust to the generalization.     

Consumer Sovereignty in Healthcare: Fact or Fiction?

We pose the question: Is consumer sovereignty in the healthcare market fact or fiction? Consumer sovereignty in healthcare implies that society benefits at large when healthcare organizations compete to develop high quality healthcare products while reducing the cost of doing business (reflected in low prices), and when consumers choose wisely among healthcare products by purchasing those high quality products at low prices. We develop a theoretical model that encourages systematic empirical research to investigate whether consumer sovereignty in healthcare is fact or fiction. In doing so, we develop a series of theoretical propositions that may demonstrate that consumer sovereignty is more fiction than fact. Specifically, healthcare consumers lack the ability, motivation, and opportunity to choose healthcare products that are high in quality and low in price. Similarly, healthcare firms lack the ability, motivation, and opportunity to compete in ways to develop and market higher quality products at lower prices.     

The Industry Determinants of Exchange Rate Pass-Through into Canadian Producer Prices

This paper models and estimates exchange rate pass-through and its determinants in Canadian manufacturing industries. The paper predicts theoretically that the exchange rate pass-through should be between one and zero, where it is positively affected by the share of tradable inputs in production costs and the domestic firms’ market share, and negatively by the elasticity of marginal cost with respect to output. The sign for the degree of product differentiation is not theoretically clear. Results of estimation indicate that pass-through is incomplete and is mostly affected by the share of tradable inputs in production costs (positively) and the elasticity of marginal cost with respect to output (negatively).     

Budget allocation for customer acquisition and retention while balancing market share growth and customer equity

Following the Blattberg and Deighton (BD) model, we incorporate market share growth to explore links between acquisition and retention. We then devise a method for nonlinear programming using a spreadsheet to balance the objectives of market share growth in the short term and customer equity in the long term. The aim of this approach is to determine the optimal spending allocation for customer acquisition and retention and, by applying this allocation to the numerical example used in the original BD model, to balance these objectives. We demonstrate that the differential unit cost of marginal effects, ceiling rate, efficiency, and allocation of spending on acquisition and retention to achieve market share growth can maximize customer equity. We also develop a criterion to help firms decide where to place spending emphasis, that is, on retaining existing customers or on gaining new ones, while keeping the objectives of market share growth and customer equity firmly in mind.     

A GENERALIZED OLIGOPOLY MODEL WITH CONJECTURAL VARIATIONS

This paper considers a generalization of the Stackelberg model to cover a T‐stage framework with several leaders and followers who compete on quantities. Assuming a linear demand function and constant marginal costs, we introduce constant conjectural variations in order to capture various structures of competition. First, we characterize the equilibrium market outcome. Second, we study the influence of conjectures on welfare. We notably propose a welfare comparison for six symmetric equilibria. Third, we consider convergence analysis, and we also show that the competitive equilibrium is a consistent oligopoly equilibrium.     

Does Corporate Social Responsibility Influence Firm Performance of Indian Companies?

This study examines whether corporate social responsibility (CSR) towards primary stakeholders influences the financial and the non-financial performance (NFP) of Indian firms. Perceptual data on CSR and NFP were collected from 150 senior-level Indian managers including CEOs through questionnaire survey. Hard data on financial performance (FP) of the companies were obtained from secondary sources. A questionnaire for assessing CSR was developed with respect to six stakeholder groups – employees, customers, investors, community, natural environment, and suppliers. A composite measure of CSR was obtained by aggregating the six dimensions. Findings indicate that stock-listed firms show responsible business practices and better FP than the non-stock-listed firms. Controlling confounding effects of stock-listing, ownership, and firm size, a favorable perception of managers towards CSR is found to be associated with increase in FP and NFP of firms. Such findings hold good when CSR is assessed for the six stakeholder groups in aggregate and for each stakeholder group in segregate. Findings suggest that responsible business practices towards primary stakeholders can be profitable and beneficial to Indian firms.     

Cournot and Bertrand Competition when Advertising Rotates Demand: The Case of Honda and Scion

We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that this mixture of Cournot and Bertrand behavior can occur when advertising rotates demand. When behaving as a Cournot-type firm such as Honda, it is more profitable to pursue a mass-market advertising campaign that rotates demand counterclockwise when it faces relatively low unit costs and a flat demand function. When behaving as a Bertrand-type firm such as Scion, it pays to pursue a niche-market advertising campaign that rotates demand clockwise when it faces relatively high unit costs and a steep demand.     

Firm-level volatility and exports

This paper shows that the share of exports in the total sales of a firm has a positive and substantial impact on the volatility of its sales. Decomposing the volatility of sales of exporters between their domestic and export markets, I show using an identification strategy based on a firm-specific geographical instrument that firms with a larger export share have more volatile domestic sales and less volatile exports. These empirical patterns can be explained using a model in which firms face market-specific shocks and short-run convex costs of production. In such a framework, firms react to a shock in one market by adjusting their sales in the other market. I point to strong evidence that output variations on the domestic and export market are negatively correlated at the firm level. This result casts doubts on the standard hypothesis that firms face constant marginal costs and maximize profits on their different markets independently of each other. Furthermore, it points to the caveat that sales volatility on a particular market only gives limited information about the size of shocks on that market.     

"四大"在中国A股证券审计市场的行为研究

"四大"在全球资本市场中扮演着重要的角色,很多学者直接将"四大"作为高质量审计的代名词。本文对"四大"于2003至2006年期间在中国A股证券审计市场的行为进行了研究,研究发现:"四大"的市场占有率逐年提高,同时各成员所之间也存在着激烈的竞争,较之"非四大",其选择的客户的规模大、财务质量高、ST(或*ST)客户比例低,另外,"四大"的独立性强,在相关行业已培育了显著的行业专长,能够提供高质量的审计服务,同时收取较低比率的审计费用。     

MODELING LIQUIDITY EFFECTS IN DISCRETE TIME

We study optimal portfolio choices for an agent with the aim of maximizing utility from terminal wealth within a market with liquidity costs. Under some mild conditions, we show the existence of optimal portfolios and that the marginal utility of the optimal terminal wealth serves as a change of measure to turn the marginal price process of the optimal strategy into a martingale. Finally, we illustrate our results numerically in a Cox–Ross–Rubinstein binomial model with liquidity costs and find the reservation ask prices for simple European put options.     

Temporal product bundling with myopic and strategic consumers: Manifestations and relative effectiveness

Bundling in this era of eCommerce and high technology is a potent and widespread selling tool. The literature has focused on three static bundling strategies under which the products are sold separately (pure components or PC) or only in a bundled form (pure bundling or PB) or both (mixed bundling or MB). In a generalization, and motivated by real world examples, this paper examines the relative effectiveness of temporal bundling. We consider a firm that sells to a market of myopic and strategic consumers, and a selling season consisting of two stages. We compare four strategies – PC-PC (i.e., pure components in each of two stages), PB-PB, PB-PC and PC-PB – relative to MB. Our results show that PB-PB maximizes profits under low marginal costs; PC-PC prevails under high marginal costs given a large proportion of myopic consumers; and PB-PC is profit maximizing under moderate marginal costs when most consumers are strategic. These temporal strategies dominate MB except when the market is comprised entirely of strategic consumers. Finally, while temporal mixed bundling – MB-MB – is weakly superior to other temporal strategies, the latter are much easier to implement, as shown by real-world uses, and suffice to capture most of the profits. Related interesting pricing implications are discussed. Three extensions to the main model are also proposed.     

The Merits of Dual Pricing of Russian Natural Gas

Our analysis reveals that, from Russia's perspective, there is no economic rationale to unify the price of natural gas it sells domestically and in Europe. We argue that pipelines allow Gazprom to segment the Russian market from the European (including Turkey) market and that Russia has market power in the European market. If Russia were to fail to exploit this market power in its European market, by selling its natural gas to Europe at only full long‐run marginal cost plus transportation costs, Russia would lose between $5 billion and $7.5 billion per year (almost two per cent of its GDP). If, instead, Russia were to raise its domestic prices to the prices it charges in Europe, Russian industry would incur very large investment adjustment and unemployment costs in the short run – adjustment costs that cannot be justified on the basis of comparative advantage. We estimate that the efficient world price would be achieved if Gazprom were to employ its optimal ‘two‐part tariff’. The optimal two‐part tariff would double Gazprom's annual profits in Europe, but it involves significant long‐term risks for Gazprom of lost market share.     

Determinants of firm-level export performance: a case study of Indian textile garments and apparel industry

Drawing on international trade and industrial organisation theories, this paper identifies variables affecting (a) the export decision function, i.e. to export or sell in domestic market, and (b) the export performance function, i.e. the share of exports in output. These functions are estimated for Garment and Apparel producing units in Delhi. The form of business organisation, reflecting access to capital, turns out to be a key determinant in both functions. The estimated marginal impact of identified variables (scale and share of sales expenses) on the probability of exporting in an estimated Probit model declines sharply when moving from single proprietorship to partnership and on to limited companies. On the other hand, every single determinant (scale, share of wages, share of sales expenses and technical efficiency) has been found to have an increasing marginal impact on export performance in an estimated Tobit model when moving across the three forms of business organisation. Empirical results suggest two policy changes to boost export performance. First, given the importance of scale for exports, the existing policy of reserving garments and apparel for exclusive production in small-scale units needs to be scrapped. Simultaneously, it is also necessary to amend current labour legislation applicable to large-scale factory units, as it introduces labour market inflexibility and hence serves as an impediment to the expansion of existing units and the entry of new units.     

Archipelago's move towards exchange status: An analysis of Archipelago trading in NYSE and NASDAQ stocks

Archipelago began reporting trades and quotes to the Pacific Stock Exchange in 2002 for NYSE-listed securities and in 2003 for NASDAQ-listed securities. These events mark the time that Archipelago began migrating stocks from its ECN platform to the exchange platform, thereby becoming a stand-alone exchange. We examine the impact of becoming a stand-alone exchange on execution quality and market share of Archipelago to gain insight into its ability to compete for order flow in NYSE and NASDAQ stocks. We find that the change has a positive effect on Archipelago's execution quality for NYSE stocks, while it has a negative effect for NASDAQ stocks. A possible explanation is that Archipelago lost the large pool of liquidity that SuperMontage provided when it became a stand-alone exchange, and that loss may offset any gain associated with having exchange status. Overall, exchange status helped Archipelago slowly make headway in the NYSE-listed securities arena.     

Airbus versus Boeing revisited: international competition in the aircraft market

This paper examines international competition in the commercial aircraft industry. We estimate a discrete choice, differentiated products demand system for wide-body aircraft and examine the Airbus-Boeing rivalry under various assumptions on firm conduct. We then use this structure to evaluate two trade disputes between the United States and European Union. Our results suggest that aircraft prices increased by about 3.7% after the 1992 US-EU agreement on trade in civil aircraft that limits subsidies. This price hike is consistent with a 5% increase in firms' marginal costs after the subsidy cuts. We also simulate the impact of the future entry of the Airbus A-380 super-jumbo aircraft on the demand for other wide-bodied aircraft, notably the Boeing 747. We find that the A-380 could reduce the market share of the 747 by up to 14.8 percentage points in the long-range wide-body market segment (depending upon the discounts offered on the A-380), but would reduce the market for Airbus's existing wide-bodies by an even greater margin.     

Product market competition and access to credit

In this paper, we unveil a disregarded benefit of product market competition for firms. We introduce the probability of bankruptcy in a simple model where firms compete à la Cournot and apply for collateralized bank loans to undertake productive investments. We show that the number of competitors and the existence of outsiders willing to acquire the productive assets of distressed incumbents affect the equilibrium share of investment financed by bank credit. Using a sample of Italian manufacturing firms, mostly small- and medium-sized enterprises (SMEs), we found evidence showing that the degree of product market competition is positively correlated with the share of investment financed by bank credit only when outsiders are absent.     

Market Justification for Policy on Small Enterprise Development

The process of liberalization in developing economies and the increasing competition faced by Small Enterprises raise crucial policy issues on small enterprise development. The policy maker in developing economies like India are faced with the option of supporting small enterprises through steps like reserving certain industries or by developing their ability to compete in niche markets. Enterprise level decisions are also critical for survival of these organisations. Selecting from these options require an understanding of the advantages that small enterprises have over the large enterprises. The advantage of flexibility and responsiveness to consumer needs of small enterprise is expected to result in customer satisfaction in a market with differing consumer needs. The hypothesis relates customer satisfaction to market share in a heterogeneous market. A field study is carried out among consumers of packaged butter in a state in India. The results do not indicate customer satisfaction with lower market share in a heterogeneous market.     

Efficient bargaining,welfare and strategic export policy

We present an efficient bargaining model and analyse the welfare effects of unionization, where rival exporting governments employ strategic export policy. The domestic firm is unionized and conducts a Nash bargain with its union to determine wage and employment. The union may be wage oriented, wage neutral or employment oriented. The foreign firm is non-unionized. Stability of the reaction function equilibrium in policy space is sufficient for the following results: (i) domestic welfare increases with the degree of wage orientation; (ii) an increase in the union's bargaining power leads to higher (lower) domestic welfare if the union is wage (employment) oriented; (iii) if the domestic social marginal cost of labour is less than or equal to the foreign marginal cost, domestic market share is higher under wage orientation.     

Exchange‐rate Misalignments in Duopoly: The Case of Airbus and Boeing

We examine the effect of exchange‐rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar‐denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange‐rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning‐by‐doing, even a temporary departure of the exchange rate from its long‐run equilibrium level may have permanent effects on the industry.     

Understanding Complexity: the Curvilinear Relationship Between Environmental Performance and Firm Performance

The nature of the relationship between environmental performance (EP) and firm performance (FP) of corporations is a long standing and contentious issue in the literature. This study is intended to advance this debate by arguing for the existence of curvilinear relationship and empirically testing the same using survey data on UK manufacturing firms. FP is captured in terms of growth in sales and market share. Our results show evidence for a quadratic relationship—as firms improve their EP, they seem to achieve much higher levels of FP. These results are consistent with the resource-based view of a firm; as firms engage in EP activities, they are able to gain inimitable knowledge that helps in further learning to further improve performance. Based on our results, we suggest that new studies focus on strategies to extend the period of increasing returns and maximizing the benefits of the positive association between EP and FP.