Price negotiation under uncertainty

This paper examines supply contract negotiation when buyer's revenue and seller's cost are uncertain. In these circumstances, both the seller and the buyer have an option to determine when to sell and buy, which may influence negotiation outcomes. Thus, we developed a bilateral negotiation model to derive the optimal selling (buying) rule considering the option. Our results show that the options of waiting to sell and to buy (1) narrow the traditional zone of possible agreement and (2) lower the probability of negotiation agreement. It is also shown that impasses can occur due to uncertainty, even when a purchase price is lower than the buyer's future revenue and higher than the seller's future cost.     

Revisiting Wireless Internet Connectivity: 5G vs Wi-Fi 6

In recent years, significant attention has been directed toward the fifth generation of wireless broadband connectivity known as ‘5G’, currently being deployed by Mobile Network Operators. Surprisingly, there has been considerably less attention paid to ‘Wi-Fi 6’, the new IEEE 802.1ax standard in the family of Wireless Local Area Network technologies with features targeting private, edge-networks. This paper revisits the suitability of cellular and Wi-Fi in delivering high-speed wireless Internet connectivity. Both technologies aspire to deliver significantly enhanced performance, enabling each to deliver much faster wireless broadband connectivity, and provide further support for the Internet of Things and Machine-to-Machine communications, positioning the two technologies as technical substitutes in many usage scenarios. We conclude that both are likely to play important roles in the future, and simultaneously serve as competitors and complements. We anticipate that 5G will remain the preferred technology for wide-area coverage, while Wi-Fi 6 will remain the preferred technology for indoor use, thanks to its much lower deployment costs. However, the traditional boundaries that differentiated earlier generations of cellular and Wi-Fi are blurring. Proponents of one technology may argue for the benefits of their chosen technology displacing the other, requesting regulatory policies that would serve to tilt the marketplace in their favour. We believe such efforts need to be resisted, and that both technologies have important roles to play in the marketplace, based on the needs of heterogeneous use cases. Both technologies should contribute to achieving the goal of providing affordable, reliable, and ubiquitously available high-capacity wireless broadband connectivity.     

Bids for the UMTS system: An empirical evaluation of the Italian case

The aim of this paper is to analyze the licensing of the telecommunication spectrum as a public good and the search for equilibrium prices through bilateral bargaining and multilateral bidding. It develops a general model of price setting under dynamic uncertainty and applies it to the Italian auction for Universal Mobile Telecommunications System (UMTS). The empirical application shows that the model can be used both to determine the base price as well as other desirable characteristics to organize an auction and to better understand, after the auction is closed, what really happened in terms of the critical factors involved. After recalling some basic concepts on spectrum rights and reviewing the general experience with UMTS auctions in Europe, the formal model and its application are presented. The results confirm certain views on the Italian auction, which are widely shared but were never tested before, namely that: (i) given the initial price, the number of licenses offered for the bidding should have been fewer, or alternatively, (ii) given the number of licenses, the base price should have been higher and (iii) the main bidder underpaid for the license. The model also allows us to quantify the bidders’ reservation price and the State and the bidders’ implicit bargaining powers.     

The 3G transition: Changes in the US wireless industry

The transition of the wireless industry from second generation (2G) to third generation (3G) is more than a simple technology upgrade. The industry's service profile will move far beyond telephony and services will converge with the computing and content sectors. This will bring many more players into this already huge industry. Thus the transition to 3G needs to be regarded as a major economic transformation as it requires a major reconfiguration of the existing value networks. Standards have traditionally been essential in the success of wireless services and will play an increasingly critical role in the future.Due to the on-going transition, wireless standardization has changed considerably—reflecting changes in the configuration of the value network. While the number of major air-interface standards has been reduced to just two, the overall number of standards bodies has increased by almost an order of magnitude while the number and scope of interfaces being standardized has grown at a breathtaking pace. This growth reflects the need to support the industry's new coordination requirements at critical interfaces in the value network. At the same time, the importance of the traditional standards development organizations (SDOs) has diminished as more nimble industry consortia have taken over the main responsibilities for standardization. The major standardization battlegrounds have shifted up the protocol stack to the service enabler level. In addition, the manufacture of handsets and other mobile communication devices is transitioning to a more horizontal industry structure. These changes, along with changes in the way value is extracted from new services and their influence on the reconfiguration of the industry are discussed.     

The Wi-Fi “congestion crisis”: Regulatory criteria for assessing spectrum congestion claims

“Wi-Fi congestion is a very real and growing problem.” So said then-Chairman of the FCC Genachowski in a recent proceeding, and this sentiment is widely heard. However, we are aware of very few engineering studies that have a bearing on this matter, and their conclusions are equivocal. Beyond this, evidence for “congestion problems” in the 2.4 GHz ISM band is anecdotal at best.While some users no doubt sometimes have service difficulties they ascribe to congestion, that is not sufficient to prove that there is a policy problem. In order to provide a basis for policy decisions, we offer an analysis of congestion metrics and results in the engineering literature. We conclude that there is little consensus on how to measure congestion, and that network metrics are difficult to correlate with user experience.We therefore propose a list of user experience-oriented service impairment criteria that, if met, would demonstrate that congestion exists to a degree that justifies regulatory intervention: For more than one of the key scenarios that are supported by an operator or technology there is a significant increase in the percentage of users who cannot complete a valuable task on a persistent, ubiquitous basis in spite of the use of state-of-the-art engineering/deployment best practices, and users׳ willingness to pay the market rate for the best available service level.Based on our assessment of public reports and experimental data, we conclude that there is currently no evidence for pervasive Wi-Fi congestion. We do not claim that the absence of evidence of congestion amounts to evidence for the absence of congestion. However, we do question the argument that congestion occurring somewhere, sometimes is a justification for regulatory intervention.     

Investment decisions in troubled times: A Bayesian approach applied to Brazilian firms

This study analyses the investment decision of 497 Brazilian firms during a period of unstable macroeconomic conditions. The role of financial constraints is considered in a Bayesian econometric model. We estimate three different models, and the results indicate the presence of financial restrictions, especially for capital-intensive firms. The recursive predictive density criterion indicates that the most preferred model is the one in which firm-specific effects are correlated with cash-flow. Financial restrictions are more important for capital-intensive firms, probably due to their lower profitability indexes, higher fixed costs and higher degree of property diversification.     

Knowledge sharing and strategic fit in integrated product development proejcts: An empirical study

While product strategy has been approached from a variety of perspectives, the role of strategic fit as a critical linkage of knowledge sharing practices and new product development outcomes have not been adequately explored. This paper discusses how strategic fit is instrumental for cross-functional teams to integrate product development outcomes. This paper identifies critical knowledge sharing components that enhances the extent of strategic fit that in turn improves the success of product development efforts. Strategic fit or alignment requires knowledge sharing practices of the product development team. Teams with a shared knowledge base are more capable of thinking strategically, adapting their actions to their project environment and accordingly engaging in innovative problem-solving while ultimately achieving project goals of time, cost and value. This paper presents and tests a research model using a sample of 285 product development projects of firms from USA, Canada and Spain. The results suggest that strategic fit is associated with greater knowledge sharing and enhance product development outcomes in both small and large firms as well as diverse regions (i.e., USA, Canada and Spain).     

Regulated prices and real options

This paper shows how the cash flows received by an unregulated firm operating in a workably competitive market can be replicated for a regulated firm. The only change to standard regulatory practice is that each time the regulated firm invests, the amount added to its rate base is the product of its capital expenditure and a multiplier, greater than one, that captures the reduction in value of the unregulated firm's growth options that occurs whenever the firm invests. The regulated firm is allowed to earn a rate of return equal to its weighted-average cost of capital, applied to this rate base. Four possible approaches to estimating the size of the multiplier are presented, each based on an established real-options investment model.     

Business R&;D and the Interplay of R&;D Subsidies and Product Market Uncertainty

This paper examines the effect of product market uncertainty and government research and development (R&D) subsidies on firm-level R&D investment. Using a sample of German manufacturing firms, we find that product market uncertainty reduces R&D investment and government R&D subsidies increase R&D investment. Moreover, our results indicate that R&D subsidies mitigate the effect of product market uncertainty on R&D investment. These findings suggest that public policies aimed at increasing business R&D investment can achieve this objective by reducing the degree of uncertainty in the product market.      

Managing commitments and flexibility by real options

In the past, transaction cost economics (TCE) literature has largely stressed the benefits of contractual commitments in relationships. TCE traditionally recommends safeguarding specific assets against holdup, thus reducing behavioral uncertainty. In contrast, the reverse side of the coin has been disregarded for a long time. Firms may lose some of their flexibility and thus the opportunity to benefit from future emerging business activities due to prior contractual commitments. Flexibility becomes especially important in dynamic environments where there is rapid technological change. To manage the emergent trade-off between contractual commitments and flexibility in dynamic markets, the authors propose a real options approach. The value of a firm's flexibility to switch to a new trading partner is represented by a real switching option. It can be shown how contractual commitments directly affect the value of the switching option. To clarify, the authors numerically analyze the respective trade-off and derive implications for an optimal choice of contractual commitments.     

Real options and MNE strategies in Asia Pacific

Asia Pacific offers a lot of promising growth opportunities, but it also presents high levels of uncertainty for multinational enterprises (MNEs). In this paper, we introduce real options theory as a theory of investment under uncertainty, and we discuss its implications for MNEs and their strategies with a focus on the emerging economies in Asia Pacific. We suggest that MNEs must recognize the various sources of uncertainty, as well as the various options embedded in their investments, and real options theory can help them structure and design their investments to benefit from uncertainty. In particular, MNEs need to develop the dynamic capabilities of managing real options in their investments to respond to the evolving economic and institutional environment in the region. This paper also provides several implications for policy makers in Asia Pacific to stimulate investment activities in the region and to help their firms venture successfully in the international market place.

Knowledge management in technology-focused firms in emerging economies: Caveats on capabilities,networks, and real options

In mature economies, technology-focused industries and the management of knowledge are widely viewed as critical to success. Increasingly, in emerging economies technology-focused industries and the management of knowledge are also viewed as important. To date, however, little is known about such activities in emerging economies. Particularly, it is not understood how knowledge management can impact efforts for corporate renewal in such environments. The literatures of the resource-based view of the firm, social capital/network theory, and real options theory are vital to providing insights for technology-focused industries and the management of knowledge in mature economies. In this paper we focus on the caveats when applying such theoretical foundations to emerging economies. To illustrate these issues we will draw on the largest emergent economy in the world, China.

Regulation and the promotion of investment in next generation networks—A European dilemma

The paper discusses the dilemmas facing European regulators (the European Commission and the national regulatory authorities) over the promotion of investment in Next Generation Access Networks (NGANs). Whereas the US has adopted a deregulatory approach and parts of Asia takes an approach linked to industrial policy considerations, the EU has largely left the process to operators working subject to a framework of regulation of access. While this may be enough to elicit investment where there is competition among networks, the incentives to invest are weaker where there is only one fixed network, as is the case in most of the territory of the EU. In reaching this view, the paper examines the prospects for competition from both wireless and municipal networks. It recommends that steps be taken fully to mobilise incentives to invest in NGANs where there is competition. Elsewhere, it may be necessary to consider a broader range of policies to create conditions for investment.     

Excessive(?) entry of national telecom networks, 1990–2001

This paper documents entry and capacity expansion in US long-distance fiber–optic networks before and during the “telecom boom.” It disentangles the many swaps and leases between networks in order to measure owned route miles versus route miles shared with other carriers. Entry is still extensive, but more moderate when these shared miles are not counted. It concludes that entry was excessive primarily with regard to swaps and leases, but less so with regard to the physical building of the networks.     

The deployment and penetration of high-speed fiber networks and services: Why are EU member states lagging behind?

One of the most controversial regulatory issues in Europe (and elsewhere) is whether the emerging next-generation access (NGA) infrastructure should be subjected to cost-based access regulation or whether at least a temporary removal of ex ante obligations (“regulatory holidays”) should be granted. Likewise, the role of NGA-specific state aid policies is increasingly capturing the attention of policy makers and the academic literature.