The measurement of conjectural variations in an oligopoly industry

Using independently derived estimates for the market demand elasticity and firm marginal cost, this paper measures the conjectural variations (cv's) of the eight largest U.S. steel firms for the years 1920 to 1972. Comparisons are then made between the measured cv's and those predicted by certain industry conduct hypotheses. Specifically the hypotheses are those for competitive behavior, Cournot behavior, imperfect collusion, and industry profit maximization (perfect collusion). One of the two extreme theories of firm behavior, industry profit maximization, is rejected, but the acceptance or rejection of the other theories depends on the assumptions made about the cost structure of the sample firms.     

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined

If there is a cartel agreement among a subset of firms in an industry, it should be predicted that all firms in that industry will increase prices. Nevertheless, industry prices alone should not indicate that a particular firm is guilty of that conspiracy. According to the output test and its market share variant – proposed by Blair and Romano – if the output or the market share of the firm that claims to be innocent in the collusive activity rises in response to the price increase, that firm's claim should be accepted as true. Using a collusive variant of the dominant firm model, this paper shows that these are not robust tests to reveal either innocence or guilt, and characterizes cases where they may pardon a guilty firm (Type I error) or indict an innocent firm (Type II error). This paper also shows that a market share test can not be used to prove a dominant firm's intent for predatory pricing.     

The Antitrust Implications of Capacity Reallocation by a Dominant Firm

When a firm acquires rival firms in one market, and moves their capacity to another market, should antitrust authorities be concerned? We address this question by studying a multi‐stage game. A dominant firm has the opportunity to acquire fringe firms that operate in the same market. Then, the dominant firm has the opportunity to move capacity from that market to a second market. The model is motivated by a series of acquisitions in the Specialized Mobile Radio industry aimed at establishing a new cellular carrier. We derive necessary and sufficient conditions for the dominant firm to acquire too little capacity relative to the social optimum. The results shed light on the Consent Decree negotiated in US v. Motorola Inc. and Nextel Communications Inc., 1994.     

Firm Growth Under Sample Selection: Conditional <Emphasis>σ</Emphasis>-Convergence in Firm Size?

This paper tests the second, widely neglected implication of Gibrat’s law stating that the variance of firm size distribution increases over time. In contrast, learning models imply conditional σ-convergence in firm size. A unique data set of Austrian firms especially suited to account for sample selection effects is used to analyze the growth/size nexus of firms. The estimation results suggest that the predicted variance in firm size decreases only for firms of age 30 or below. For older age cohorts the hypothesis of a constant variance either cannot be rejected or increasing variances are found.     

The R&D performance in Taiwan's electronics industry: a longitudinal examination

R&D investment has been widely regarded as an important input for firms, particularly for high‐tech firms, to achieve competitive advantage within their industry. Hence, a number of high‐tech firms are now investing substantial amounts into R&D. Since R&D efforts enable firms to raise the competitive advantage, one noticeable and interesting issue expected to know is the degree to which R&D investment influences firm output performance. In Taiwan, much greater emphasis is also being placed into R&D investment in the high‐tech industries; however, R&D output performance has never been seriously examined within this sector. Since the island's electronics industry is widely regarded as the most promising industry in the ‘high‐tech sector’, and is expected to place greatest emphasis on its R&D efforts, we take the electronics firms as our analytical sample. This paper therefore sets out to estimate the impact of R&D on firm performance, in terms of productivity growth and the rate of return on investment, within the electronics industry in Taiwan, whilst also examining the Schumpeterian hypothesis, that R&D performance is an increasing function of firm size. Our examination of R&D performance is based on a panel sample of 83 large electronics firms, completely balanced over the period from 1994 to 2000, with series data of R&D capital also being constructed. Based upon the extended Cobb‐Douglas production function, a random effects model is developed with the estimations revealing that the output elasticity of R&D is around 0.19 and the average rate of return on R&D is around 22%. These findings clearly demonstrate that investment in R&D by these electronics firms has had an impact on their competitive advantage. Compared to the findings of previous studies, where the analytical unit of data was at firm level, here the rate of return on R&D is consistent with similar estimates for the US and UK, but lower than those for Japan. However, our estimations do not provide support for the hypothesis that the impact of R&D on productivity is an increasing function of firm size.     

The Effect of U.S. Antidumping Law on Firms' Market Power: An Empirical Test

An empirical version of the Lerner index is used to investigate the market power effects of U.S. firms seeking protection under current antidumping law. The market power consequences are examined for each of the three possible resolutions of an antidumping investigation: petition for relief accepted (and duties levied), petition rejected, or petition withdrawn. For each outcome an industry case study is presented and the market power analysis conducted. The results contained herein support the hypothesis that U.S. firms receiving protection enhance their domestic market power, while firms having their petition rejected experience a decrease in market power. The evidence is less clear for plaintiffs who withdraw their antidumping petition prior to its final resolution.     

Is performance driven by industry‐or firm‐specific factors? A new look at the evidence

In this study we revisit the question of whether firms' performance is driven primarily by industry or firm factors, extending past studies in two major ways. Firstly, in a departure from past research, we use value‐based measures of performance (economic profit or residual income and market‐to‐book value) instead of accounting ratios (such as return on assets). We also use a new data set and a different statistical approach for testing the significance of the independent effects. Secondly, we examine whether the findings of past research can be generalized across all firms in an industry or whether they apply to a particular class of firms within the same industry. We find that a significant proportion of the absolute estimates of the variance of firm factors is due to the presence of a few exceptional firms in any given industry. In other words, only for a few dominant value creators (leaders) and destroyers (losers) do firm‐specific assets seem to matter significantly more than industry factors. For most other firms, i.e., for those that are not notable leaders or losers in their industry, however, the industry effect turns out to be more important for performance than firm‐specific factors. Copyright © 2002 John Wiley & Sons, Ltd.     

Bargaining over employment as a firm strategic choice

This paper develops a simple model as to why unionized Cournot firms acting non-cooperatively in the product market may find it optimal to commit to bargaining outcomes with their specific union, which are off the labor demand curve, hence restricting their behavior to non-profit maximizing practices in their product markets. The prediction that power over labor conceded strategically to the union by the firm is negatively linked to union wage power is not rejected on a panel of Belgian firms as well as the prediction that the union bargaining power can be affected by product market structure and other variables affecting union wages.     

Boards of Directors,Innovation, and Performance: An Exploration at Multiple Levels

This work reports on an investigation of the dynamics of governance over breakthrough innovation within Fortune 1000 firms. The primary research question investigates the boundary of agency theory within the firm. Using agency and stakeholder theoretic perspectives, the study tests the hypothesis that innovation will thrive in firms that combine a board of directors operating in accordance with a high agency theoretic focus in addition to an innovation governance board operating deeper within the firm that employs a strong stakeholder theoretic orientation in its behavior. The model is tested with data from 98 large firms. Results suggest that the relationship between board of directors' behavior and the firm's overall innovativeness is mediated by innovation decision‐making boards that (1) promote projects that are breakthrough in scope, (2) incorporate input of diverse constituencies within the firm, (3) exhibit patience with financial results, and (4) engage in frequent, informal interactions with project teams. Firms exhibiting high board of director agency orientation in combination with loyalty to mandate, patient financial capital disposition, inclusiveness, and project team interaction as described above for innovation governance board decision‐making prove to be the most innovative as measured by external indicators. For firm innovativeness, consolidated managerial power and behavior is frequently present at the upper levels of the firm, but must be broken down at deeper levels of the firm. This research offers implications to innovation decision‐makers as to how to proceed if the intent is to offer commercializably successful breakthrough innovations.     

Management heterogeneity,competitive interaction groups,and firm performance

One of the fundamental problems in strategic management is to map a heterogeneous set of firms in an industry into subsets of firms within which firms are homogeneous in their conduct and performance. The strategic group concept provides an answer to this intriguing question. Researchers in strategic group theory argue that firms within the same strategic group are behaviorally similar and thus tend to compete more fiercely within the group than across groups. In this paper, we focus on the question whether firms within the same group show similar decision‐making characteristics. Strategic‐choice theorists argue that top management teams in firms have substantial discretion in determining the future strategic contour of firms. Upper‐echelon theorists also argue that top managers are the strategists who set the direction of firms and the pace of competition in the industry. Further, they argue that top management team characteristics are an important element that determines the market niche in which a firm competes and the strategic direction a firm follows. Based on these arguments, we expect that there will be a significant link between grouping of firms by the patterns of competitive interactions and grouping of firms by top management team heterogeneity. Moreover, we argue that the closer the TMT heterogeneity of a firm is to the dominant heterogeneity in the competitive interaction group, the better it performs. Copyright © 2000 John Wiley & Sons, Ltd.     

A note on dominant firm market share and economic performance

The hypothesis of a positive concentration-profits relationship has been one of the most thoroughly tested in economics. Market share has been used in a number of these studies as a measure of horizontal dominance by a firm in an industry. Although these studies have shown empirically that a positive relationship exists between market share and rates of return, little theoretical evidence for this relationship exists. The price leadership model can be used to show that a continuous, direct relationship exists between market share and competitive injury. From a simulation exercise based upon the price leadership model, a positive association is demonstrated between increasing market share of the dominant firm (or collusive leading firms) and increasing competitive injury (as evidenced by a greater divergence between the competitive versus price leadership price-output decisions). This exercise establishes market share as a fundamental structrual variable in describing the short run competitiveness within the industry. The results of this model imply that intra-industry cross section studies, utilizing a carefully defined price leader(s) and price followers dictomy, should yield better statistical fits. At the present stage of empirical testing, however, only the roughest approximations using rather arbitrary definitions of the price leader-follower dichotomy have been made.     

企业的异质性假设和企业竞争优势的内生性分析

与完全竞争模型的描述根本不同，现实企业之间普遍存在着利润差距在企业内质性假设条件下，无论是新古典经济、传统产业组织理论的SCP分析范式，还是企业竞争战略的产业分析方法，都把企业的利润归结为外在的市场结构因素，而动态地看，现实企业是异质的，它表现为企业长期发展过程中积累的核心知识和能力的差异。作为企业实施竞争战略的关键性要素，核心知识和能力是非竞争性的，难以模仿和替代。它构成了企业长期利润或竞争优势真正基础。在企业异质性假设条件下，企业的竞争行为及其竞争优势是内生性的。     

Codetermination as a strategic advantage?

A theoretical model of codetermination is considered, where consistent with German institutions, firm owners bargain with employees’ representatives about employment but not about wages. A duopoly and a more general oligopolistic situation are analyzed. For some range of bargaining power a prisoner’s dilemma exists. Codetermination leads to increased profits if the other firm is a traditional profit maximizer. Bargaining is the dominant strategy, although joint profits would be maximized with unrestricted profit-maximization. The theory is tested with data from 22 German firms, who operate in the same markets over 23 years. Codetermined firms actually show a different behavior than other companies.     

集体声誉危机与企业认证行为——基于“柠檬市场”治理机制的视角

中国制造业部门时有发生的行业集体声誉危机不仅抑制了消费者对中国产品的需求,也造成了企业行为扭曲。本文从“柠檬市场”不同治理机制间的交互作用入手,构建理论模型考察了行业集体声誉危机对被牵连企业认证行为的影响机理,并以中国乳制品行业为样本,运用双重差分法进行实证检验。研究发现,集体声誉危机通过破坏市场声誉机制提高了企业的认证激励,原本没有必要申请认证的高质企业比低质企业更愿意在危机后加大认证申请。此外,集体声誉危机还引发了企业非理性的过度认证,在穷尽强相关认证后,企业的认证激励并未减弱反而转向申请其他弱相关认证。额外增加的认证成本抵消了认证对销售收入增长的促进作用,导致“过度认证陷阱”,不利于企业质量提升和危机行业的转型升级。上述结论从企业认证行为扭曲这一视角拓展了有关集体声誉危机负面效应的认识,对政府避免危机发生以及完善认证行业发展有着积极的指导意义。     

Firm profitability and relative firm power

This paper expands the notion of extended rivalry as cross-industry relations within the chain of production and distribution, and argues that firm power resides in the exclusivity and essentiality of the firm's function in the chain. A cross-section of U.S. manufacturing firms representing components for finished goods, capital goods, and supplies or consumable products is examined. The analysis of the three industry groups by simultaneous equation estimation provides general support for the hypothesis that firm power, as expressed in inter-industry transactions, and industry structure, is associated with firm profitability.     

Technology—An increasingly dominant factor in corporate strategy

The paper considers the implications for future corporate strategy of the probability that the capitalist world is in the down-phase of a 50-year long-wave Kondratieff' economic cycle. Without commitment to a universal theory of long-wave generation the author proposes a lifecycle model of a whole industry or dominant technology. He deduces from this the likelihood confirmed by some historical data that major industries will at best survive one cycle and will almost inevitably decline after the next. Individual firms within such sectors will go down with the industry unless they face the need early enough in the decline phase to embrace a new technology in the next up-phase. The author provides a framework for diagnosing the phase of the lifecycle occupied by an industry or firm. He suggests that by combining this with an existing model of corporate strategy a company can plan a course of action that will improve its chances of survival.     

Technology—An increasingly dominant factor in corporate strategy

The paper considers the implications for future corporate strategy of the probability that the capitalist world is in the down-phase of a 50-year long-wave Kondratieff' economic cycle. Without commitment to a universal theory of long-wave generation the author proposes a lifecycle model of a whole industry or dominant technology. He deduces from this the likelihood confirmed by some historical data that major industries will at best survive one cycle and will almost inevitably decline after the next. Individual firms within such sectors will go down with the industry unless they face the need early enough in the decline phase to embrace a new technology in the next up-phase. The author provides a framework for diagnosing the phase of the lifecycle occupied by an industry or firm. He suggests that by combining this with an existing model of corporate strategy a company can plan a course of action that will improve its chances of survival.     

The Dominant Firm Model Revisited

This paper extends the standard Forchheimer dominant firm model by making more explicit shifts in the fringe supply when the market price set the dominant firm deviate from its limit price. It demonstrated how, when a dominant firm engages in short-run profit maximization, the market price it sets in the long run will equal its limit price and that, in certain situations, increased production cost for fringe lead to an increase in the number of fringe firms in the long run.     

The Investment Behaviour of Firms in an Oligopolistic Setting

Industrial organization theory has identified strategic investment in capacity as an important element in competition in oligopolistic markets. In the paper we specify a model of oligopolistic investment behaviour, and test it with panel data for 114 firms in 15 narrowly defined UK manufacturing industries in the 1970s and 1980s. The industries are distinguished according to their market characteristics as fragmented, dominant firm and dominant group sectors. The results indicate behaviour which is noncooperative in fragmented sectors, cooperative in dominant group sectors and competitive in dominant firm sectors.     

Advertising, Its Determinants, and Market Structure

This study derives a formal model of firm advertising behavior and applies it to the industry level to figure out the relationship between advertising and market structure. The firm advertising model shows that both consumer preference andfirm-specific advertising competence jointly determineprofit-maximizing advertising intensity. At the industry level, advertising intensity is represented multiplicatively by consumer preference and a measure of market structure, which reflects the joint distribution of the levels of advertising competence and market shares among firms. The new market structure measure suggests that those single-dimensional measures of market structure such as seller concentration and the Herfindahl index are inadequate in explaining interindustry differences in advertising intensity, and that the long-debated advertising-concentration relationship differs depending primarily on the appropriability of advertising. An empirical analysis of 426 five-digit Korean manufacturing industries shows that an inverted U-shaped relationship between the Herfindahl index and industry advertising intensity is observed for consumer goods industries but a lazy J-shaped relationship for producer goods industries.