Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity

Previous advertising intensity models have failed toaddress adequately the rivalry effects of leadingfirms trying to protect and enhance the marketshares of their brands. We argue that the relativedegree of market share parity among leading firms inoligopolies is a crucial determinant of marketadvertising levels. This study presents a modelthat more thoroughly characterizes market structureby including the variance in the market shares ofthe top four firms along with the concentrationratio. This model is then tested using a unique1987 data set of 58 well-defined U.S. food andtobacco manufacturing markets that used private datavendors for branded product market shares and mediaadvertising aimed at household consumers. We findthat industry advertising-to-sales ratios arehighest in those industries with the highestprice-cost margins, highest concentration, and thosewith equally-sized leading firms. Oligopolists seemunable to control advertising expenses asconcentration increases and they likely overinvestin advertising rivalry when they have similar marketshares.     

The extent of single firm dominance in U.S. manufacturing industries: Reply

Myupper bound leading firm share estimates are not affected by Daskin's criticisms. In particular, my central conclusion that dominant firms are rare in U.S. manufacturing industries is unchanged. However, his criticisms of mylower bound estimates are generally correct; better ways can be found to compute these. In addition, I made a computational error which prevented him from replicating my previously reported lower bound results. Fortunately, the results are relatively insensitive to the computational algorithm. As demonstrated above, there is little quantitative impact and less qualitative impact.⁵ His assertion that his criticisms raiseserious questions about validity of my empirical work is incorrect.     

Performance of Japanese firms in patented inventions; an analysis of patents granted in the U.S.

This paper addresses the relation between firm size and R&D activity for Japanese large manufacturing firms using patents granted in the U.S.. Japanese firms loom larger in world R&D agenda; therefore, the examination of the determinants of their R&D activity, in particular, the effects of firm size, may provide a suggestion of R&D activity. The firm size-patent count relationship varies across industry. In many industries, Japanese experience is not in favor of the assertion that there is a return to scale in R&D among large firms, indicating that Schumpeterian entrepreneurship is not likely to take place more than proportinately to firm size. This conclusion is not inconsistent with Schumpeter's theory.     

Offshoring Pollution while Offshoring Production?

Research summary: We examine the role of firm strategy in the global effort to combat pollution. We find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). Consistent with the Pollution Haven Hypothesis, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. The negative impact of LWC imports on emissions is stronger for U.S. plants located in counties with greater institutional pressure for environmental performance, but weaker for more‐capable U.S. plants and firms. These results highlight the role of local institutions and firm capability in explaining firms' offshoring and environmental strategies. Managerial summary: Using confidential trade, production, and pollution data of more than 8,000 firms and 18,000 plants from the U.S. Census Bureau for years 1992–2009, we find that U.S. plants release less toxic emissions when their parent firm imports more from low‐wage countries (LWCs). In addition, goods imported by U.S. firms from LWCs are in more pollution‐intensive industries. U.S. plants shift production to less pollution‐intensive industries, produce less waste, and spend less on pollution abatement when their parent imports more from LWCs. However, not all U.S. firms choose to “offshore pollution.” U.S. plants located in counties with greater institutional pressure for environmental performance offshore more, but more‐capable U.S. plants and firms offshore less. Copyright © 2017 John Wiley & Sons, Ltd.     

The influence of market structure on technological performance in the food-manufacturing industries

This paper tests the effect of firm and market structure variables on the rate of R&D investment by food processing firms. While the estimated relationship is consistent with the hypotheses of Schumpeter and Galbraith at small firm sizes and small-to-moderale concentration levels, above these critical values expected firm R&D increases at a decreasing rate with firm size and decreases with market concentration. The second part of this paper examines the origins of process patents closely related to six food industries. On average U.S. firms outside the industry, foreign firms, and individuals were each assigned more food-industry patents than were U.S. food processing firm. These findings place the public policy interpretation of observed relationships between market power and firm technological performance into a broader perspective. Even if a reduction in market concentrationn reduced R&D originating within a food industry, this decrease might bede minimus relative to technological changes, originating outside the industry.     

U.S. Multinational Activity Abroad and U.S. Jobs: Substitutes or Complements?

Critics of globalization claim that firms are being driven by the prospects of cheaper labor and lower labor standards to shift employment abroad. Yet the evidence, beyond anecdotes, is slim. This paper reports stylized facts on the activities of U.S. multinationals at home and abroad for the years 1977 to 1999. We focus on firms in manufacturing and services, two sectors that have received extensive media attention for supposedly exporting jobs. Using firm‐level data collected by the Bureau of Economic Analysis (BEA) in Washington, D.C., we report correlations between U.S. multinational employment at home and abroad. Preliminary evidence based on the operations of these multinationals suggests that the sign of the correlation depends on the crucial distinction between affiliates in high‐income and low‐income countries. For affiliates in high‐income countries there is a positive correlation between jobs at home and abroad, suggesting that foreign employment of U.S. multinationals is complementary to domestic employment. For firms that operate in developing countries, employment has been cut in the United States, and affiliate employment has increased. To account for firm size, substitution across firms and entry and exit, we aggregate our data to the industry level. This exercise reveals that the observed “complementarity” between U.S. and foreign jobs has been driven largely by a contraction across all manufacturing sectors. It also reveals that foreign employment in developing countries has substituted for U.S. employment in several highly visible industries, including computers, electronics, and transportation. The fact that there were U.S. jobs lost to foreign affiliates in key sectors, despite broad complementarity in hiring and firing decisions between U.S. parents and their affiliates, helps explain why economists view the impact of globalization on U.S. jobs as benign despite negative news coverage for declining industries.     

Market Share Instability and the Dynamics of Competition: a Panel Data Analysis of Japanese Manufacturing Industries

This paper explores market share instability as a measure of market mobility. Using a newly constructed panel data set, we examine the determinants of the market share instability of leading firms in Japanese manufacturing industries. The findings suggest that there is a significant relationship between concentration and market share instability, and the market shares of leading firms are more stable in highly concentrated industries. We also provide evidence that industry growth has a significantly positive effect on market share instability.     

Global corporate competition: Who's winning,who's losing,and the R&D factor as one reason why

This study summarizes the major changes over the period 1960–86 in the shares of world markets of the world'S leading American, European and Asian corporations based in 15 major industries. It relates the differential sales growth rates of the gaining and losing firms to national trends in industrial competitiveness, to employment change and to long-term returns to shareholders. One principal determinant of firms' global growth rates, and thence gains and losses in ‘world market share’, corporate research and development (R&D) intensity, is examined and tested on an 83-firm, six-industry subset of the overall data base. The proportion of corporate sales revenues allocated to commercially oriented R&D emerges as a, perhaps the, principal indicator of subsequent sales growth performance relative to competition over 5–10-year periods. Insofar as many U.S. and U.K. firms have lost global market share relative to Asian and European competitors over the past two decades, a significant contributory factor would appear to have been negligence on the part of many U.S. and U.K. firms of investment in technology as a factor determining strategic, competitive advantage.     

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.     

Market Power,Efficiency and the Dispersion of Systematic Risk

A number of studies have used the Capital Asset Pricing Model (CAPM) to integrate product market and financial theories of the firm. We reexamine the relationship between product market structure and systematic risk at the firm and industry level. We show that theory yields no testable implications at the firm level. We show, however, that there is a relationship between the intraindustry dispersion of systematic risk and industry concentration which depends on the causes and consequences of concentration. Estimates of the relationship between the intraindustry variance of and concentration for a 1987 cross-section of U.S. industries suggest that concentration allows larger firms to exercise market power.     

Industry learning environments and the heterogeneity of firm performance

This paper characterizes interindustry heterogeneity in rates of learning‐by‐doing, and examines how industry learning rates are connected with firm performance. Using plant‐level data from the U.S. manufacturing sector, we measure the industry learning rate as the coefficient on cumulative output in a production function. We find that learning rates vary considerably among industries and are higher in industries with greater R&D, advertising, and capital intensity. More importantly, we find that higher rates of learning are associated with wider dispersion of Tobin's q and profitability among firms in the industry. These findings suggest that learning intensity represents an important characteristic of the industry environment that affects the range of firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

The relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry

This paper estimates the effects of actual and potential rivalry on profitability of firms in the U.S. pharmaceutical industry during the 20‐year period 1963–82. The results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability, but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability. The results also show that potential competition significantly reduced drug firms’ profitability during the entire 20‐year period. Copyright © 1999 John Wiley & Sons, Ltd.     

Estimating the mark-up over marginal cost: a panel analysis of Japanese firms 1971–1994

In this paper, we propose a new method to estimate mark-ups over marginal cost at the firm level. This method is based on the identity between the short-run elasticity of output to inputs, the mark-up rate, and the factor shares. We then apply this method to a panel of Japanese firms in 21 industries over 24 years. We have three main results. First, there is strong evidence of imperfect competition in this panel, in which internationally competitive industries show low mark-ups. Second, the mark-up rate differs considerably among firms and its distribution is skewed. Third, the mark-up rate over marginal cost shows strong procyclicality, and its sensitivity is uniform within the industry.     

Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation

This study exploits longitudinal employer–employee matched data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in earnings inequality within and across industries between 1992 and 2003. We find that factors that cannot be measured using standard cross‐sectional data, including the entry and exit of firms and the sorting of workers across firms, are important sources of changes in earnings distributions over time. Our results also suggest that the dynamics driving changes in earnings inequality are heterogeneous across industries.     

Corporate diversification: the impact of foreign competition,industry globalization,and product diversification

The globalization of markets and industries has fundamentally changed the competitive conditions facing firms. Yet, how globalization has influenced the international diversification strategies of firms is an issue largely overlooked in both the strategic management and international business literatures. This paper develops a theoretical framework to understand how industry globalization, foreign competition, and firm product diversification may influence a firm's choice of its degree and scope of international diversification. Utilizing a panel dataset of U.S. manufacturing firms for the period 1987–99, we provide the first empirical evidence that industry globalization and foreign-based competition are statistically significant factors explaining the degree and scope of international diversification by U.S. firms. Copyright © 2007 John Wiley & Sons, Ltd.     

Firm Density and Industry R & D Intensity: Theory and Evidence

By deriving a formal model of industry R & D that identifies factors influencing industry R & D intensity, this paper first suggests firm density, defined as the inverse of average firm sales or simply the number of firms divided by industry sales, as a measure of market structure that is appropriate in explaining industry R & D intensity. The model shows that the cost structure of R & D, consumer preference over quality and price, the appropriability of R & D, firm density, and the average level of firm R & D intensity jointly determine industry R & D intensity. In particular, firm density has a positive relationship with industry R & D intensity, implying that firms in higher firm-density industries feel fiercer competitive pressure and thus engage more intensively in R & D. An empirical analysis of panel data on industry R & D activities of Korean manufacturing industries during the period 1991–1996 provides supportive evidence for the predictions of the model including the positive relationship between firm density and industry R & D intensity. The theoretical model and the empirical results are also consistent with the recent survey of U.S. corporate R & D activities by the U.S. Department of Commerce and the National Science Foundation (1999).     

Stock of downstream complementary assets as a catalyst for product innovation during technological change in the U.S. machine tool industry

Research summary : We investigate the effect of incumbents' stock of downstream complementary assets on their product innovation during a disruptive technological change. We theorize that a firm's stock of downstream complementary assets, by providing critical information about shifting demand conditions, will play a catalytic role in firm adaptation during such a change. Using the advent of disruptive computer numerical control machine tools in the U.S. machine tool industry during the 1970s and 1980s as the context, we find that firms with greater stocks of downstream complementary assets are likely to be product innovation leaders during such a change. Managerial summary : Disruptive changes are challenging firms across industries. We concentrate on the U.S. machine tool industry during the 1970s and 1980s when Japanese manufacturers with disruptive computer numerical control systems challenged the U.S. manufacturers. We find that, under the threat of disruption, the greater the stock of downstream complementary assets a U.S. machine tool manufacturer has, the more likely it is to be the product innovation leader with the disruptive technology. Our findings provide novel insights for managers in companies that face disruptive changes and can help them avoid the consequences of such changes as predicted by prior research. Copyright © 2016 John Wiley & Sons, Ltd.     

Measuring value creation and appropriation in firms: The VCA model

Research summary : Using a productivity technique (VCA model), we estimate the economic value created by a firm and appropriated by its stakeholders in two specific empirical contexts. In the first application, we use publicly available data from the U.S. airline industry to illustrate how the VCA model can be used with multiple stakeholder groups. In the second application, we provide estimates for three global automobile companies (GM, Toyota and Nissan), showing how the model can be reformulated using value added. In both industries we find substantial heterogeneity among firms in the creation and distribution of value. We discuss strengths and limitations of the VCA model and implications for strategic management research. Managerial summary : Firms create value not only for shareholders, but also for other stakeholders, including employees, customers and suppliers. This article applies a method to quantify the “new” economic value created by a firm over an interval of time; the method also reveals the distribution of that value among the stakeholders. The proposed method gives managers some means to assess changes in the economic value created and distributed. We find that the creation and distribution of value has varied greatly among major U.S. airlines and global automakers in recent decades. Moreover, returns to shareholders typically accounted for only a small proportion of firms' total value creation and often had little relation to broader changes in the magnitude and distribution of value. Copyright © 2016 John Wiley & Sons, Ltd.     

Regulation, Open-Access Transportation, and Productive Efficiency

This paper examines the initial impact of open-accesstransportation on firm efficiency. Under open-accesstransportation, firms provide transportation servicefor a general class of customers on anon-discriminatory basis. Open-access transportationmay enhance competition among firms, and lead toincreases in firm efficiency as well as lower prices forconsumers. The transportation program's impact onproductive efficiency is tested using a 1977–1989panel of 20 U.S. interstate natural gas pipelinecompanies. Results indicate that the program led to(i) a small reduction in transportation cost, and (ii)small increases in firm efficiency.     

Dynamic Adjustment in the U.S. Higher Education Industry, 1955–1997

We analyze how the number of higher education institutions responds to demand growth by applying a dynamic model to U.S. data over the period 1955–1997. We derive our dynamic, partial adjustment model from first principles under various assumptions about firm behavior, ranging from profit-maximization by Cournot firms to output-maximization by non-profit firms. Empirical estimates from this dynamic model suggest that the higher education industry does indeed respond to demand growth, but only moderately in the short run and little more in the long run. Certain segments within the overall industry exhibit much stronger responsiveness in the short and long run, in particular, public and 2-year schools.