MARKET PERFORMANCE WITH MULTIPRODUCT FIRMS*

We revisit the fundamental issue of market provision of variety associated with Chamberlin, Spence, and Dixit‐Stiglitz when firms sell multiple products. Both products and firms are (horizontally) differentiated. We propose a general nested demand framework where consumers first decide upon a firm then which variant to buy and how much (the nested CES is a special case). We use it to determine the market's biases when firms compete in product ranges and prices. The market system attracts too many firms with too few products per firm: firms restrain product ranges to relax price competition, but this exacerbates over‐entry.     

On the strategic value of risk management

This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where firms that are rendered “risk averse” by financial frictions decide on and commit to their hedging strategies before their product market strategies. We find that commitment to hedging modifies the pricing and production strategies of firms. This strategic effect is channeled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders' “risk aversion”. It has opposite effects depending on the nature of product market competition: commitment to hedging toughens quantity competition while it softens price competition. Finally, not committing to the hedging position can never be an equilibrium outcome: committing is always a best response to non-committing. In the Hotelling model, committing is a dominant strategy for all firms.     

Wage councils,product markups and wage markdowns: Evidence from Uruguay

In 2005, after a leftist coalition won the national election for the first time, Uruguay returned to sector-level wage bargaining councils with active government participation. We estimate product markups and wage markdowns using firm-level data for the period 2002–2016, and report decreasing wage markdowns and increasing -to a lesser extent- firm-level product markups. We find statistically significant impacts of minimum mandated wages on product markups and wage markdowns, and additional effects of unions on wage markdowns. The evidence suggests that firms operate in monopsonistic labor markets. Though their bargaining power in the labor market was reduced over time as a result of wage councils, firms were able to pass a sizable part of the increases in labor costs to consumers.     

An Exploratory Analysis of the Impact of Market Orientation on New Product Performance

For many firms, emphasizing the importance of market orientation has taken on a mantra-like quality. Mission statements and memos, policies, and procedures all highlight the importance of staying in touch with the customer. It is also widely assumed that the relationship between market orientation and new product performance depends on environmental conditions and product characteristics. To date, however, little empirical evidence has been presented to support the assumption that market orientation influences new product performance. Kwaku Atuahene-Gima addresses this research need in a study of 275 Australian firms. In addition to exploring the relationship between market orientation and new product development activities and performance, his study examines the effects of environmental conditions and product characteristics. Specifically, the study investigates whether the relationship between market orientation and new product performance depends on the degree of product newness to customers and the firm; the intensity of market competition and the hostility of the industry environment; and the stage of the product life cycle at which the new product was introduced. The survey results provide strong support for the basic proposition that market orientation influences new product performance and development activities. The results show a strong positive relationship between market orientation and a new product's market performance. Market orientation is also shown to have a strong positive effect on proficiency of predevelopment activity, proficiency of launch activity, service quality, product advantage, marketing synergy, and teamwork. Although market orientation is generally found to be an important factor in the success of new products, its influence varies depending on the type of new product—that is, radical versus incremental. Market orientation appears to have greater influence on new product performance when the product represents an incremental change to both the customers and the firm. However, this does not mean that a market-oriented approach is unnecessary in the development of radically hew products. Market orientation also has a greater effect when the perceived intensity of market competition and industry hostility are high, and during the early stage of the product life cycle. Because market competition and industry hostility typically intensify as the product life cycle progresses, these findings suggest that the effects of market orientation are pervasive. In other words, managers should not limit their expectations of market orientation to specific projects or specific stages of the development process and product life cycle.     

Payment choice of M&As: Financial crisis and social innovation

The payment choice of mergers and acquisitions (M&As) influences firm performance and facilitates wealth transfer to shareholders and realises synergy through stakeholders' implicit contract. This study examines the choice of payment methods and firm-level characteristics of UK M&As during the financial crisis referring to the business-to-business (B2B) market in a broader sense. Further, conceptualising social innovation as a process-outcome-value construct, this study evaluates the choice of payment methods and firm-level characteristics of M&As through the lens of corporate social responsibility (CSR). The findings suggest that a stock payment method is favoured well over a cash payment method by the acquirers of M&A firms and firms that are pursuing social innovation through CSR activities. The results further document that a volatile market affected by the financial crisis reacts to the financing choice of M&As, making a sizable impact on firms' capital structure, ownership concentration, and asymmetric information. Acquiring firms that opt for stock payment methods register a significant increase in their firm-level characteristics, such as market-to-book-value, deal value, growth, and CARs compared to the cash payment method deals.     

Timing of technology adoption and product market competition

This paper examines how product market competition affects firms' timing of adopting a new technology, as well as whether the market provides sufficient adoption incentives. It demonstrates that adoption dates differ, not only among symmetric firms, but also among markets with different market features. More specifically, technology adoption can occur earlier in a market with Cournot competition than in a market with Bertrand competition. It can also occur earlier in a market in which goods are not too close substitutes. Therefore, this paper shows that competition toughness does not always reinforce adoption incentives. When goods are sufficiently differentiated, adoption occurs later than is socially optimal.     

THE INTERACTIONS OF ORGANIZATIONAL AND COMPETITIVE INFLUENCES ON STRATEGY AND PERFORMANCE

Despite much debate in the strategy literatures, there is little consensus as to whether organizational capabilities or market competition are more important in shaping firms’ actions and performance. We suspect that simply comparing firm-level and industry-level influences will continue to prove fruitless for two reasons. In the first place, both organization and competition are clearly important in shaping strategy and performance. In the second place, we suspect that the inconclusive nature of much of the existing research reflects the fact that organizational capabilities, competition, strategy, and performance are fundamentally endogenous. That is, reciprocal interactions at multiple levels of analysis between the environment and the firm shape business strategy and performance, while interactions between strategy and performance, in turn, shape both organizational capabilities and competitive environments. This special issue of the Strategic Management Journal includes papers that focus attention on several dimensions of these interactions. A common theme emerges from the work concerning the sequential nature of the interrelationships. The papers suggest that firms develop organizational capabilities as they act in competitive, institutional, and cognitive environments, where capabilities arise both by design and as the unexpected by-products of firm actions. The capabilities, managers’ understanding of the capabilities, and the historical context that surrounds them then condition firms’ reactions to changes in their environment. The reactions and firm performance in turn affect the structure of the industry, and all these changes generate new information which in turn creates new learning opportunities. Thus, the papers view strategy and performance as an ongoing sequence of capabilities-conditioned adaptations by firms which in turn become exogenous events in the environments of the managers of other firms. For strategy researchers, the important question is not that of which disciplinary perspective or mode of explanation is a more appropriate one, but rather that of the conditions under which a given mode of explanation is most appropriate. © 1997 by John Wiley & Sons, Ltd.     

Under the Cover of Antidumping: Does Administered Protection Facilitate Domestic Collusion?

Anecdotal evidence suggests that domestic firms can use the antidumping petition process to engage in collusion and increase domestic prices. In this paper, I test whether the antidumping petition process itself can help domestic firms raise prices. I propose a method to identify whether firms in the industry experience a structural break in the level of market power possessed by the firms at the time that they file their antidumping petition. I use this methodology to analyze the impact of antidumping petitions on competition levels in two industries. I find little evidence that either of these industries increased their market power following the filing of petitions for trade relief, nor even from the protection that resulted from these petitions. These findings suggest that the widespread belief that antidumping leads to more market power may not always hold.     

The Effect of Advertising on Pharmaceutical Innovation

Although there is much controversy in the economic literature about how advertising affects market competition, little is known about the effect of advertising on product innovation. We examined the relationship between advertising expenditures and the research and development activities of pharmaceutical firms using empirical data from eight therapy areas. This study finds that detailing advertising may have a significant positive effect on the number of new products entering into clinical development. Markets of chronic disease with high levels of detailing advertising were more attractive to pharmaceutical firms. However, the effect of advertising on new product novelty remains inconclusive.     

New Product Strategies of Large, Dominant Product Manufacturing Firms: An Exploratory Analysis

Although researchers have expended considerable effort exploring the links between new product strategy and firm-level performance, most studies of this subject focus on small- to medium-sized firms. Compared to smaller firms, however, large companies typically maintain broader portfolios of products and have easier access to capital markets. Such fundamental differences suggest the need for closer examination of the relationship between new product strategy and the performance of large firms. Based on a study of 459 new products introduced during a 5-year period, Richard W. Firth and V. K. Narayanan profile the new product strategies of 18 large companies. They examine the methods used to acquire new products (internal development or external sources) as well as three dimensions of each firm's new product introductions: newness of embodied technology, newness of market application, and innovativeness in the market. In other words, these profiles identify the degree to which a firm's new product introductions involve core technologies and markets that are new to the firm, as well as the degree to which the market views these products as innovative. Because new product strategy is an investment decision, the study also examines the relationship between these strategic profiles and two facets of firm-level performance: risk and return. The study identifies five archetypes of new product strategy: Innovators, who produce innovative products by using their existing resources; Investors in Technology, who focus on expanding their technological base. Searching for New Markets, firms that venture into unfamiliar markets by introducing products closely aligned with those in their existing portfolios; Business as Usual, firms that rely on existing technologies and products to serve existing markets; and Middle-of-the-Road, firms content to introduce new products rated as low to moderate along all three dimensions of the strategic profile. For new products closely aligned with their core markets and technologies, the firms in this study typically rely on internal development. To introduce products involving new technologies or market applications, they turn to acquisition from external sources. Firms that emphasized market innovativeness in their new product introductions enjoyed higher returns than less innovative firms. And contrary to conventional wisdom, they gained this advantage without an accompanying increase in risk. In other words, continual innovation might provide a large firm with the means for achieving higher returns without higher risk.     

The Breakfast of Champions: Associations Between Champions and Product Development Environments, Practices and Performance

According to conventional wisdom, if an innovative new product development (NPD) effort is to stand any chance for success, the project must have a champion. The role of the champion has taken on almost mythic proportions, through oft-told tales of the development of such disparate products as instant cameras, automobiles, and microprocessors. Notwithstanding the purportedly essential role that champions play, however, we have only anecdotal evidence of the manner in which effective champions operate and the benefits that they offer. Stephen K. Markham and Abbie Griffin suggest that before we can explore questions about how champions affect product development performance, we must address an even more fundamental issue: whether champions actually influence performance. Using data from the 1995 PDMA study of best practices in product development, they test various widely held assumptions about champions and NDP performance. Specifically, they investigate the association between championing and the following variables: NPD performance at the program, firm, and project levels; industry characteristics; and project- and firm-related NPD characteristics. In several respects, the results of their study run counter to current beliefs about product development champions. For example, the study suggests that champions are just as likely to be found in large firms as they are in small firms. Similarly, the results indicate that the likelihood of finding a champion does not differ significantly between technology-driven firms and marketing-driven firms. For the firms in this study, champions are no more likely to support radical innovations than they are to back incremental innovations or product line extensions. The results of the study suggest that champions do not directly affect firm-level NPD performance. Instead, the results of this study associate increased championing with higher levels of NPD program performance, which positively affects firm-level performance. The results of this study also do not support the notion that a champion can directly improve the market success of a particular project.     

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.      

Corporate environmental responsibility (CER) weakness,media coverage,and corporate philanthropy: Evidence from China

This study investigates the hidden connection between corporate philanthropy and corporate environmental responsibility (CER) weakness. Using a sample of Chinese listed firms in polluting industries and hand-collected data on corporate environmental performance and corporate philanthropy, we show that CER weakness is significantly positively associated with corporate philanthropy, suggesting that corporate philanthropy may be used by environmentally unfriendly firms to mitigate the negative influence of CER weakness and offset pressures from stakeholders. This finding also implies that Chinese enterprises in polluting industries are inclined to engage in greenwashing via the conduit of corporate philanthropy. In addition, media coverage reinforces the positive association between CER weakness and corporate philanthropy. Above results are still valid after controlling for the potential endogeneity between CER weakness and corporate philanthropy.     

Group Consumption and Product Diversity: The Case of Smoking Bans

I study product diversity in the presence of search costs and groups of consumers. Groups with heterogeneous tastes create a leverage effect on competition: a large majority of firms may end up offering a product that corresponds to the taste of the minority. I illustrate this idea with smoking bans in bars and restaurants. When the first nonsmoking restaurants opened, there were few of them with little competition and high market power on nonsmokers. By extracting a large surplus from nonsmokers, nonsmoking restaurants became unattractive to other groups, while smoking restaurants were plenty and competitive, attracting both smokers and mixed groups.     

Building and leveraging competence exploitation and exploration for firm new product success

We theorize that industry conditions of collaboration intensity and innovation intensity drive the development of competence exploitation and exploration in manufacturer-manufacturer collaborations, and that such competencies can be leveraged to increase firm-level new product sales and market share, contingent on the firm's establishment of non-proprietary knowledge transfer capability. We test our model using a survey of 224 manufacturer-manufacturer collaborations. Our findings indicate that collaboration intensity drives firms to build both competence exploration and exploitation while innovation intensity drives neither. We also find that while non-proprietary knowledge capability enhances the influence of competence exploration on a firm's new product sales and market share, it dampens the firm's ability to leverage competence exploitation for firm-level new product success.     

The Form of Relationship between Firm‐Level Product Innovativeness and New Product Performance in Developed and Emerging Markets

This study compares the new product performance outcomes of firm‐level product innovativeness across a developed and emerging market context. In so doing, a model is constructed in which the relationship between firm‐level product innovativeness and new product performance is anticipated to be curvilinear, and in which the nature of this relationship is argued to be dependent on organizational and environmental factors. The model is tested using primary data obtained from chief executive officers and finance managers in 319 firms operating in the United Kingdom, an advanced Western market, and 221 firms from Ghana, an emerging Sub‐Saharan African market. The model is assessed using a structural equation model multigroup analysis approach with LISREL 8.5. In the United Kingdom and Ghana, the basic form of the relationship between firm‐level product innovativeness and business success is inverted U‐shaped, but the strength and/or form of this relationship changes under differing levels of market orientation, access to financial resources, and environmental dynamism. While commonalities are identified across the two countries (market orientation helps firms leverage their product innovativeness), differences are also observed across the samples. In Ghana, access to financial resources enhances the relationship between product innovativeness and new product performance, unlike in the United Kingdom where no moderation is observed. Furthermore, while U.K. firms leverage product innovativeness to their advantage in more dynamic environments, Ghanaian firms do not benefit in this way: here, high levels of innovation activity are less useful when markets are more dynamic. If the study's findings generalize, there are a number of implications for managers of both emerging and developed market businesses. First, managers in both developed and developing market firms should focus on determining and managing an optimal balance of novel and intensive product innovativeness within the context of their unique institutional environments. Second, for emerging market firms, a market orientation capability helps businesses leverage local market intelligence, enabling them to compete with multinational giants flocking to emerging markets, but typical developed market learning approaches may be insufficient for multinational firms when seeking to compete in emerging markets. Third, for emerging market firms, access to finances helps deliver product innovation success (although this is not the case for developed market firms, possibly due to strong financial institutions). Finally, unlike developed market firms, burdened by institutional voids at home, emerging market firms appear to be less capable of competing on an innovation front in more dynamic market conditions. Accordingly, policymakers in emerging markets should consider identifying ways to help businesses raise market orientation levels, and seek to create conditions that enhance access to financial capital (e.g., direct financing, matching grants, tax rebates, or rewarding firms that innovate creatively and intensely). Likewise, since environmental dynamism is likely to be a growing issue for emerging markets, efforts to help firms become more adept at keeping up with more agile developed market counterparts are needed.     

Productivity and Wage Effects of Firm-Level Collective Agreements: Evidence from Belgian Linked Panel Data

How do firm-level collective agreements affect firm performance in a multi-level bargaining system? Using detailed Belgian-linked employer–employee panel data, our findings show that firm-level agreements increase both wage costs and labour productivity (with respect to sector-level agreements). Relying on approaches developed by Bartolucci and Hellerstein et al., they also indicate that firm-level agreements exert a stronger impact on wages than on productivity, so that profitability is hampered. However, this rent-sharing effect mostly holds in sectors where firms are more concentrated or less exposed to international competition. Firm agreements are thus mainly found to raise wages beyond labour productivity when the rents to be shared between workers and firms are relatively big. Overall, this suggests that firm-level agreements benefit both employers and employees — through higher productivity and wages — without being very detrimental to firms’ performance.     

New Product Development Practices and Early‐Stage Firms: Two In‐Depth Case Studies

New product development practices (NPD) have been well studied for decades in large, established companies. Implementation of best practices such as predevelopment market planning and cross‐functional teams have been positively correlated with product and project success over a variety of measures. However, for small new ventures, field research into ground‐level adoption of NPD practices is lacking. Because of the risks associated with missteps in new product development and the potential for firm failure, understanding NPD within the new venture context is critical. Through in‐depth case research, this paper investigates two successful physical product‐based early‐stage firms' development processes versus large established firm norms. The research focuses on the start‐up adoption of commonly prescribed management processes to improve NPD, such as cross‐functional teams, use of market planning during innovation development, and the use of structured processes to guide the development team. This research has several theoretical implications. The first finding is that in comparing the innovation processes of these firms to large, established firms, the study found several key differences from the large firm paradigm. These differences in development approach from what is prescribed for large, established firms are driven by necessity from a scarcity of resources. These new firms simply did not have the resources (financial or human) to create multi‐ or cross‐functional teams or organizations in the traditional sense for their first product. Use of virtual resources was pervasive. Founders also played multiple roles concurrently in the organization, as opposed to relying on functional departments so common in large firms. The NPD process used by both firms was informal—much more skeletal than commonly recommended structured processes. The data indicated that these firms put less focus on managing the process and more emphasis on managing their goals (the main driver being getting the first product to market). In addition to little or no written procedures being used, development meetings did not run to specific paper‐based deliverables or defined steps. In terms of market and user insight, these activities were primarily performed inside the core team—using methods that again were distinctive in their approach. What drove a project to completion was relying on team experience or a “learn as you go approach.” Again, the driver for this type of truncated market research approach was a lack of resources and need to increase the project's speed‐to‐market. Both firms in our study were highly successful, from not only an NPD efficiency standpoint but also effectiveness. The second broad finding we draw from this work is that there are lessons to be learned from start‐ups for large, established firms seeking ever‐increasing efficiency. We have found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground‐level, and there is little emphasis on defined processes. This exploratory research highlights the unique aspects of NPD within small early‐stage firms, and highlights areas of further research and management implications for both small new ventures and large established firms seeking to increase NPD efficiency and effectiveness.     

Brand-specific tastes for quality

This paper develops a model of nonlinear pricing with competition. The novel element is that each consumer's willingness to pay for quality is private information and is allowed to differ across brands. The consumer's preferences are represented by a multidimensional type containing the marginal value of quality for different products. Buyers with high willingness to pay for quality also display strong preferences for particular brands, and require higher discounts in order to switch away from their favorite product. Therefore, competition is fiercer for buyers with lower tastes for quality, and hence more elastic demands. This is in sharp contrast to earlier models in which competition is fiercer for higher-taste, more valuable buyers. In equilibrium, firms either compete intensively for the entire market (providing strictly positive rents to all consumers) or shut down the least profitable segment of the market. Quality levels are distorted downwards for all buyers, except for those with the highest type. The number of competing firms and the degree of correlation across brand preferences enhance the efficiency of the allocation.     

Is all communication created equal?: an investigation into the effects of communication mode on perceived information quality

Enhancing communication between functions is crucial to successful product development and management. Previous work in the product innovation management literature has made two implicit assumptions. First, that increasing the frequency of information dissemination from one function to the other always improves the perceived quality of the information received. The second assumption is that all types of interfunctional communication carry equal weight in the decision‐making process of the target of that communication. The current study develops a typology of communication modes, which suggests a rationale for why these assumptions may not be true. The empirical findings of the study, based on a survey of 504 nonmarketing managers indicate that the relationship between total communication frequency and perceived information quality (PIQ) is nonlinear. Specifically, the study finds that marketing managers can either communicate too little or too much with nonmarketing managers. If they interact too infrequently, they run the risk of not understanding the way to most effectively communicate market information. If they communicate too much, they may overload the manager with too much information and erode the overall quality of the information sent. In addition, some modes of communication are more effective in improving perceptions of the quality of market information. For instance, regular e‐mail sent by marketing managers seems to have no effect on perceived information quality. On the other hand, e‐mail sent with supporting documentation can have a strong positive effect on perceived information quality. Impromptu phone calls by marketing have less positive effects than scheduled phone calls. Interestingly, too much of the wrong types of communication actually seem to reduce perceptions of perceived information quality, and consequently the likelihood that market information will be used. The study also suggests that certain kinds of communication are better for manufacturing managers and others more effective in sharing information with R&D managers. For instance, disseminating information through written reports seems to reduce perceived information quality. This is particularly true for R&D managers. On the other hand too many meetings can reduce perceptions of PIQ, particularly on the part of manufacturing managers. Implications for theory and practice are discussed.