The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm

A low-cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations; however, the dominant firm will not predate (price below marginal cost). Since a dominant firm will not drive out fringe firms if they have myopic expectations, it may be in the dominant firm's best interests to inform the fringe. The effects of governmental intervention on the optimal path and welfare are presented.     

Long-Term or Short-Term Managerial Incentive Contracts

This paper deals with the strategic role of the temporal dimension of contracts in a duopoly market. Is it better for a firm to sign long-term incentive contracts with managers or short-term contracts? For the linear case, with strategic substitutes (complements) in the product market, the incentive variables are also strategic substitutes (complements). It is shown that a long-term contract makes a firm a leader in incentives, while a short-term contract makes it a follower. We find that, under Bertrand competition, in equilibrium one firm signs a long-term contract and the other firm short-term incentive contracts; however, under Cournot competition, the dominant strategy is to sign long-term incentive contracts.     

Financial contracts as coordination device

We study the use of financial contracts as bid‐coordinating device in multi‐unit uniform price auctions. Coordination is required whenever firms face a volunteer's dilemma in pricing strategies: one firm (the “volunteer") is needed to increase the market clearing price. Volunteering, however, is costly, as inframarginal suppliers sell their entire capacity whereas the volunteer only sells residual demand. We identify conditions under which signing financial contracts solves this dilemma. We test our framework exploiting data on contract positions by large producers in the New York power market. Using a Monte Carlo simulation, we show that the contracting strategy is payoff dominant and provide estimates of the benefits of such strategy.     

需求受定购数量影响的供应链合同设计问题

本文针对一类市场需求受定购影响的问题提出了最佳合同设计问题。现实生活中上网卡或者高档消费品等特殊商品，数量卖的过多，顾客对该商品的评价下降，从而购买量也会相应下降，因此零售商需要考虑如何制定定购数量和合同形式使得自身利益最大。经对目前各种合同形式的研究，发现buy-back合同是最合适的合同形式，它能够达到供应链最佳协调的效果并能实现利润在供应链伙伴间任意分配。     

Horizontal mergers and the balance of trade

This paper explores the relationship between market structure and the balance of trade in a dominant firm/competitive fringe model. It is shown that, absent efficiency effects, a horizontal merger between the dominant producer and a domestic fringe firm leads to a deterioration in the balance of trade, but, where efficiencies arise, this effect may be reversed. A sufficient condition for such reversal to occur is derived.     

Orders and Organizations:

A BSTRACT . We explore the relevance to the theory of economic organization of the distinction introduced by Hayek between two kinds of social order: spontaneous orders and organizations. We argue that Hayek's ideas lead to an understanding of the business firm as a process, which comes very close to some of the core notions of the evolutionary theory of the firm, while they still view the firm as the outcome of a contract among asset owners. First of all, we put forth a simple conceptual schema in order to differentiate between contracts that lead to the formation of an organization and ordinary market contracts. We then explore the conditions for an understanding of the firm as a set of interconnected processes, rather than as an end state. Finally, we introduce the concept of purposeful direction as an important condition for the existence of the firm and we show the history-contingent character of the firm's growth.     

Bankruptcy, Takeovers, and Wage Contracts

Takeovers give raiders the opportunity of breaking implicit contracts inside the firm. If implicit contracts are adopted by workers and management to reach more efficient outcomes, then the possibility of takeovers may cause a welfare loss. We show that, under some conditions, this argument can go through even if the firm and the workers can write explicit and complete contracts. The crucial assumption is that the profitability of the firm is linked to its financial situation, in the sense that a firm which has a high probability of bankruptcy will face fewer opportunities than a financially solid firm. In this framework, the possibility of takeovers imposes constraints on the set of feasible employment contracts, leading to inefficient outcomes.     

A Study of Vertical Integration and Vertical Divestiture: The Case of Store Brand Milk Sourcing in Boston

This article investigates whether a retailer’s store brand supply source impacts vertical pricing and supply channel profitability. Using chain‐level retail scanner data, a random coefficients logit demand model is estimated employing a Bayesian estimation approach. Supply models are specified conditional on demand parameter estimates. Bayesian decision theory is applied to select the best fitting pricing model. Results indicate that a vertically integrated retailer engages in linear pricing for brand manufacturers’ products while competing retailers make nonlinear pricing contracts with brand manufacturers for branded products and store brands. A simulated vertical divestiture based on real world events provides evidence for improved channel efficiency.     

The Effect of Organizational form on Information Flow and Decision Quality: Informational Cascades in Group Decision Making

This paper identifies a disadvantage to decision making in a team. We show that in some cases available information is lost due to sequential communication that results in informational cascades. Although incentive contracts exist that prevent cascades, in some cases these contracts do not maximize shareholders' expected residual value and cascades are tolerated in equilibrium. Cascades never occur in hierarchies that exogenously prevent communication. However, when the firm is organized as a hierarchy (and the agents are given the optimal hierarchical contract), in some cases agents will collude and sequentially communicate, admitting the possibility of cascades. In these cases, the principals must monitor and enforce the hierarchical process. When monitoring costs exceed the cost of cascades, the team is the optimal organizational form.     

Supply chain finance and impacts of consumers’ sustainability awareness

Several new methods have been proposed for supply chain finance (SCF) with bank credits, but none of them mentions how to solve the borrowers’ moral hazard problems in SCF. This paper examines the moral hazard problem in supply chain financing with procurement contract (or purchase order). We show that since supply chain is an up-down directed structure, when financing with the procurement contract, the supplier’s effort monitoring task can be rendered to the procurement contract, which can secure the supplier’s optimal effort and capital choices in production. Hence, compared to separate lending, the supplier’s credit rationing problem can be mitigated, and most importantly, banks’ under-estimation on the supplier’s default risk and the over-estimation on the retailer’s default risk will both decrease. We further show that the retailer’s corporate social responsibility expenditure can increase consumers’ brand recognition, thus when facing demand shocks arising from consumer’s unexpected concerns, the retailer can better stabilize the firm value.     

The Firm as a Multicontract Organization

The firm is often considered as a nexus of contracts linking the management and its different stakeholders: claim-holders, workers, unions, customers, suppliers, and the state, among others. This paper surveys recent work in contract theory, the multiprincipal incentive theory, and the theory of side contracts, which provides some insights into the structure of those contracts and therefore into the structure of the firm. First, we discuss the incomplete contracting assumptions underlying these variations of the usual grand contract approach. Second, we explain how the theoretical lessons learned from this work—the distribution of contracting rights, the power of incentive schemes within organizations, and the design of communication channels—apply to the theory of the firm.     

The strategic effect of retailers' in‐store advertising services under product variety competition

We study a retailer service model of in‐store advertising, in which a neutral retailer provides product information to consumers for free but charges manufacturers. Our results show that the retailer's optimal pricing induces the manufacturers to decrease the number of items they offer. Nevertheless, this relaxes the competition between the manufacturers so that they benefit from using the in‐store service, unless the cost of communicating with consumers about the between‐firm products is lower. Furthermore, the service can be made socially beneficial by reducing the inefficiency resulting from an excessive number of items when manufacturers are not well differentiated.     

A Comparison of Exit and Voice Relationships Under Common Uncertainty

We consider a repeated interaction between a manufacturing firm and a subcontractor. The relationship between the two parties is characterized (1) by moral hazard, and (2) by the fact that they do not have perfect knowledge about the base cost level of the project, which is carried out by a subcontractor (the parties only have identical a priori beliefs). We consider a two-period model where the players can update their estimate of the base cost level according to incoming information. Exit relationships, where the firm signs one-period contracts with different subcontractors, are compared with voice relationships, where both partners commit to a two-period interaction and (due to information sharing and face-to-face communication between the partners) additional information about the base cost level is generated. It is shown that in such a dynamic framework with common uncertainty the quality of the additional information plays a crucial role in determining the characteristics of the optimal relationship: voice-based strategies governed by long-term contracts are preferable if the precision of the additional information about the base cost level is high. If the precision of the additional signal is low, exit strategies with frequent changes of the subcontractors are optimal for the manufacturer.     

基于零售商风险厌恶的供应链管理

考虑由一个供应商和一个零售商组成的二级供应链,在零售商风险中性和风险厌恶的条件下,分别研究了三种不同契约下零售商的最优订单问题,得到零售商风险厌恶时的最优订单量要小于零售商风险中性时的最优订单量,最后给出研究结论及管理学意义。     

Wholesale price discrimination: Innovation incentives and upstream competition

In intermediate good markets where there are alternative supply sources, wholesale price discrimination may enhance innovation incentives downstream. We consider a vertical chain where a dominant firm and a competitive fringe supply imperfect substitutes to duopoly retailers which carry both varieties. We show that a ban on price discrimination by the dominant supplier makes uniform pricing credible and reduces retailers’ incentives to decrease the cost of acquiring the competitively supplied variety, leading to higher upstream profits and lower downstream welfare. Our analysis complements existing results by identifying a novel channel through which wholesale price discrimination can improve dynamic market efficiency.     

One‐Stop Shopping as a Cause of Slotting Fees: A Rent‐Shifting Mechanism

Consumers increasingly prefer to bundle their purchases into a single shopping trip, inducing complementaries between initially independent or substitutable goods. Taking this one‐stop shopping behavior into account, we show that slotting fees may emerge as a result of a rent‐shifting mechanism in a three‐party negotiation framework, where a monopolistic retailer negotiates sequentially with two suppliers about two‐part tariff contracts. If the goods are initially independent or sufficiently differentiated, the wholesale price negotiated with the first supplier is upward distorted. This allows the retailer and the first supplier to extract rent from the second supplier. To compensate the retailer for the higher wholesale price, the first supplier pays a slotting fee as long as its bargaining power vis‐à‐vis the retailer is not too large.     

International tenders and futures hedging

This paper examines the optimal bidding and hedging decisions of a risk‐averse firm that takes part in an international tender. The firm faces multiple sources of uncertainty: exchange rate risk, risk of an unsuccessful tender, and business risk. The firm is allowed to trade unbiased currency futures contracts to imperfectly hedge its contingent foreign exchange risk exposure. We show that the firm shorts less (more) of the unbiased futures contracts when its marginal utility function is convex (concave) as compared with the case that the marginal utility function is linear. We further show that the curvature of the marginal utility function plays a decisive role in determining the impact of currency futures hedging on the firm's bidding behavior. Sufficient conditions that ensure the firm bids more or less aggressively than in the case without hedging opportunities are derived. Copyright © 2006 John Wiley & Sons, Ltd.     

基于信息共享的供应链双源渠道Stackelberg博弈分析

对于双源渠道供应链系统中零售商和制造商的信息共享问题,引入市场需求不确定信息作为信息共享的重要影响因素,利用Stackelberg主从对策,构建了四个考虑信息共享的双源渠道供应链Stackelberg博弈模型,分析了零售商和制造商在是否分享市场不确定信息和是否运用于商务活动的博弈过程。研究结果显示:零售商和制造商都会尽可能去获取市场需求不确定信息,并且制造商会把此信息充分运用到电子商务市场来提高自己以及供应链整体利益。     

Excess worker turnover and fixed-term contracts: Causal evidence in a two-tier system

Portuguese firms engage in intense reallocation, most employers simultaneously hire and separate from workers, resulting in high excess worker turnover flows. These flows are constrained by the employment protection gap between open-ended and fixed-term contracts. We explore a reform that increased the employment protection of open-ended contracts and generated a quasi-experiment. The causal evidence points to an increase in the share and in the excess turnover of fixed-term contracts in treated firms. The excess turnover of open-ended contracts remained unchanged. This result is consistent with a high degree of substitution between open-ended and fixed-term contracts. At the firm level, we also show that excess turnover is quite heterogeneous and quantify its association with firm, match, and worker characteristics.     

基于数量折扣的双层规划订货策略研究

考虑单供应商单零售商组成的两级供应链,在市场需求为零售价格的指数函数假设下,建立了当占支配地位的供应商给零售商提供数量折扣时的双层规划模型,然后设计了一种简单实用的求解算法。