The power of apology

How should firms react to customer complaints after an unsatisfactory purchase? In a field experiment, we test the effect of different reactions and find that a cheap-talk apology yields significantly better outcomes for the firm than offering a monetary compensation.     

Why Do Prices Remain Stable in the Bubble and Bust Period?

In spite of a large swing in real output growth in the bubble and bust period, aggregate prices remained relatively stable in Japan. Empirical results show that such price rigidity can be explained by the customer market model combined with financial constraints. The degree of financial constraints that firms face in the bubble and bust period fluctuates significantly, and the impact of financial positions on firms’ prices is counter-cyclical. In booms, liquidity-abundant firms invest in market share by keeping prices down, while in a recession financially constrained firms charge a high price to locked-in customers who remain loyal. Such counter-cyclicality is clearly observed in the pricing behavior of large firms that produce differentiated goods. In contrast, small firms whose product brand is not well established in the market cannot lock in customers, and hence financial constraints do not affect their pricing decisions.     

Price Dynamics in Repeat-Purchase Markets*

A retail market in which customers repeat purchase is modelled. When customer movement between firms is sluggish, price overshooting characterizes firms' optimal response to demand or cost shocks. Thus retail prices would be predicted to be more variable than wholesale prices, a prediction at variance with empirical evidence. Uncertainty in demand and customer imperfect information are introduced into the model to attempt to reconcile this inconsistency between theory and evidence. The introduction of demand uncertainty actually increases the magnitude of price overshooting. By contrast, the introduction of imperfect customer information reduces the variability in retail prices.     

A real options reasoning approach to hybrid vehicle investments

Long term increases of petrol prices and the threat of a global climate change have created in the automotive industry a new competitive environment based on the development of more sustainable technologies. Using the real option reasoning lens we provide a theoretical framework to better account for the technological and market uncertainties and irreversibilities that impact the investment and innovation decisions of automotive firms supporting the development of more sustainable vehicle technologies. We investigate the case of hybrid vehicles in a transitional perspective by insisting on their potential to influence the dynamic shaping of investment decisions of firms in the car industry. We consider the hybridization strategy as intra-project and inter-project compound growth options to manage the flexibilities and irreversibilities of investment decisions during the transition process. We provide four different-sometimes conflicting-strategic rationales structuring the investment efforts of firms in hybrid vehicles and illustrate them with numerous examples from the automotive industry.     

Incentive Regulation and Efficient Pricing

Abstract ** :  One objective of introducing incentive regulation to the newly privatized UK utilities over the past 20 years was to encourage efficient pricing structures. Caps have been imposed on average price levels, giving firms freedom to rebalance amongst prices within the basket. We test how firms have responded to the incentives within such discretion through an extensive review of the relative prices charged within UK price capped industries. We find surprisingly little response to these incentives, suggesting that strategic behaviour dominates short‐term profit incentives even after the introduction or threat of competition .     

PRICE DYNAMICS WITH CUSTOMER MARKETS

Using microdata from a U.S. retailer we document that customer turnover responds to pricing. We study the optimal price setting of a firm when its demand has an extensive margin that is elastic to price due to customers' opportunity to search for an alternative supplier. The price pass‐through of idiosyncratic productivity shocks is incomplete, with the most productive firms passing through more. Firm demand is more persistent than price. Higher demand is associated with lower markups due to higher search intensity, despite flexible prices. We find empirical support for these predictions in microdata from the retail industry.     

Stock prices and inflation hedged firms

As the Federal Reserve continues its near-zero rate policy, the threat of inflation remains a concern among both policymakers and businesses. This article uses over 30 years of accounting data and stock returns to examine how publicly traded firms respond to increasing inflation expectations. We first examine whether firms make balance sheet adjustments in response to expected inflation. We then examine whether these activities have a positive effect on stock prices. We find that firms increase inventory, increase capital expenditures and reduce long-term debt when there is an increased expectation of inflation. We then find that firms that increase inventory in this economic regime are rewarded in the market. Markets also reward firms that increase their cash positions and reduce long-term debt possibly suggesting investor flight to safety.     

Technological evolution of the semiconductor industry

New forces are emerging in the semiconductor industry. These are likely to change the pattern and speed of technical change in that industry. The changes include: (1) movement towards greater service and customer orientation; (2) higher prices for technology sales; (3) greater emphasis on strategic alliances for technology and market sharing; and (4) greater U.S. government involvement in protecting the U.S. industry. All factors point to an increase in market power of the large firms. The next five years will be a transitional period during which various adjustments will be made to the evolving strategies of the firms. During this period, we have no reason to believe that there will be any slowing down in the pace of technical change. Thereafter, i.e., once the new structure matures, the pace of change is likely to slow down.     

Why firms set different export prices? Evidence from Spain

Using firm-level export data for the 2010–2014 period, we investigate the variation of export prices across and within Spanish manufacturing firms. We find that more productive firms set higher export prices. However, this result is not robust to controlling for other firm-level characteristics and alternative productivity measures. We show that firms set higher export prices in more distant markets and in destinations with high GDP per capita, and lower export prices in large and low-competition markets. These latter results suggest that firms adjust the quality of their products to destination characteristics.     

Interfirm Bundling and Vertical Product Differentiation

In this paper, we study the competitive effects of bundled discounts offered by pairs of independent firms. In a setting with vertically differentiated goods, where firms decide whether to participate in a discounting scheme before prices are set, it is shown that, in equilibrium, all pairs of firms producing goods of the same quality level offer bundled discounts. Relative to the no‐bundling benchmark, we find that (i) all headline prices rise, (ii) all bundle prices, net of the respective discount, decrease, and (iii) only high‐quality sellers will obtain higher profits. Furthermore, this equilibrium corresponds to the worst scenario in terms of consumer welfare, and it and decreases social welfare.     

客户集中度与股价崩盘风险：火上浇油还是扬汤止沸*

客户是企业重要的利益相关者,重要客户是否对供应商的经营决策、财务决策以及风险产生影响是一个重要的理论和实务问题。本文从股价崩盘风险的角度研究客户集中度的影响。研究结果表明,客户集中度越高,公司股价崩盘风险越低。这表明,整体上客户集中度有助于股价崩盘风险的缓解。进一步研究发现,客户集中度对股价崩盘风险的治理作用主要源于供应链整合而非客户议价能力。这表明,客户集中有利于公司与客户之间供应链整合,进而降低公司的经营风险和信息披露风险,最终缓解股价崩盘风险。     

The division of innovative labour: when does customer codevelopment contribute to firm innovation performance?

ABSTRACT

Innovative firms often involve customers in their product development to drive innovation outcomes. However, few have empirically examined how this division of innovative labour affects innovation performance. Drawing on prior studies and the knowledge-based theory of the firm, we theorise conditions under which customer codevelopment benefits innovation performance. By examining panel data from Swiss firms, we provide the first empirical account of the performance effects of customer codevelopment based on a large-scale survey sample. We find that a firm's absorptive capacity reinforces the relationship between customer codevelopment and innovation performance. We elaborate on the implications of these findings for the literatures on customer codevelopment and open innovation.     

网络产业收入监管激励问题研究

对具有自然垄断特性的网络产业,各国都对其收入实施严格的监管。而如何采取具有激励作用的收入监管,历来是经济学家研究的重点。对该方面进行的综述性研究表明,在不对称信息存在的情况下,采取基于成本的收入监管机制,监管机构不得不对低效率企业的产出进行扭曲,同时高效率企业获得信息租金;而采取基于价格的收入监管机制,在考虑了企业的努力程度时,低效率企业的努力程度将受到向下的扭曲,同时高效率企业获得信息租金。分析还表明,在基于价格的收入监管机制下,价格机制的选取和激励问题可以分开考虑。     

On Assisting Domestic Industries under Bertrand Competition

In a homogeneous‐good duopoly game with a home and a foreign firm, which compete on prices, it has been shown that the optimal way to assist the domestic industry is by a production subsidy. The argument here is that the subsidy is used to keep potential competitive pressure on the foreign firm. This paper analyzes under which conditions this threat of entry of a subsidized home firm is credible. It is shown that in markets where the firms move before the government, a subsidy is not credible and dominated by a tariff in terms of welfare.     

Exploring the influence of industries and randomness in stock prices

This study explores the behavior of time series of historical prices and makes two additional contributions to the literature. In summarized form, we present an overview of each of the financial theories that discuss the movements of stock prices and their connection with industry trends. Within this theoretical framework, we first propose that prices be distinguished by following stock prices and a random-walk approach, and second, that the analysis of historical prices be broken down by industries. Similarities among price series are extracted through a clustering methodology based on an approach to non-computable Kolmogorov complexity. We model price series by following geometric Brownian motion and compare them to historical series of stock prices. Our first contribution confirms the existence of hidden common patterns in time series of historical prices that are clearly distinguishable from simulated series. The second contribution claims strong connections among firms carrying out similar industrial activities. The results confirm that stock prices belonging to the same industry behave similarly, whereas they behave differently from those of firms in other industries. Our research sheds new light on the stylized feature of the non-randomness of stock prices by pointing at fundamental aspects related to the industry as partial explanatory factors behind price movements.     

Markups,quality, and transport costs

This paper provides new evidence on trade prices based on firm-level data from France. It shows that firms charge higher free-on-board (net of transportation costs, hereafter noted as fob) unit values on exports to more distant countries. This finding holds within firms and products, and across destinations. The price premium paid by distant consumers is due to firms charging higher fob prices, and to higher transportation costs. A simple decomposition of the elasticity of import prices to distance shows that, after a fall in transport costs, almost 80% of the decline in import prices enjoyed by consumers is due to firms charging lower fob prices. This suggests a new channel through which changes in transport costs may affect welfare.     

Information and transparency in wholesale electricity markets: evidence from Alberta

We examine the role of information transparency in Alberta’s wholesale electricity market. Using data on firms’ bidding behavior, we analyze whether firms utilize information revealed in near real-time through the Historical Trading Report (HTR), which is released 10 min after each hour and contains a complete (de-identified) list of every firms’ bids into the wholesale market from the previous hour. We demonstrate that firms are often able to identify the offers of specific rivals by offer patterns adopted by those firms. For one of these firms, these patterns are associated with higher offer prices. This is consistent with allegations by Alberta’s Market Surveillance Administrator that firms may be utilizing unique bidding patterns to reveal their identities to their rivals to elevate market prices. We show that certain firms respond to rival offer changes with a lag consistent with responding to information revealed through the HTR, and that they respond differently to different firms, suggesting that they are able to infer identification.     

Do Chinese executives reward for luck?

This paper examines the sensitivity of executive compensation to luck based on Chinese listed companies. To identify the causal effect, we rely on companies’ market performances driven by exogenous oil prices. We document a positive relationship between executive compensation and market performance driven by oil prices, which support the story of pay for luck. Moreover, by introducing a natural experiment China in 2015, i.e., the policy of “CEO compensation limit” in state-owned firms, we show that the shock of CEO compensation limit significantly weakens the effect of pay-for-luck. We further show that there is asymmetry in pay for luck. Specifically, when oil prices rise, executive compensation is more sensitive to good luck. In addition, the sensitivity of executives to pay-for-luck is more pronounced in firms with state-owned, higher equity concentration, and related party transaction.     

Market Underreaction and Overreaction of Technology Stocks

Several studies have assessed stock market under- or overreaction of stocks and there is some agreement among them. However, there is much disagreement about what constitutes market underreaction or overreaction, and the conditions that cause it. The substantial variation in results among studies may be partially attributed to the types of firms that are contained in any sample. We investigate this premise by focusing on a sample of technology stocks that experienced an extreme change in stock price, along with a corresponding control sample of non-technology stocks that experienced a similar extreme change in stock price on the same day.

Based on the subsequent stock price behavior of each sample, we find a greater degree of overreaction within extreme positive changes in technology stock prices (winners) than in non-technology stock prices. In addition, we find a greater degree of underreaction within extreme negative changes in technology stock prices (losers) than in non-technology stock prices. When considering winners and losers collectively for technology and non-technology firms, it appears the market is overoptimistic when it initially revalues technology stock prices relative to non-technology stock prices.

The degree of under- or overreaction of technology stocks varies within the sample of technology stocks, and is conditioned on firm-specific characteristics. Overall, our results suggest that technology stocks exhibit unique stock price behavior subsequent to an extreme change in price, and that this unique behavior can even vary among technology firms according to firm-specific characteristics.     

Micro-responses to shocks: pricing,promotion, and entry*

We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia, their market share collapsed from 16.5 percent in January to below 1 percent in March, and never fully recovered; by 2009, it was 6.3 percent. By analyzing micro-level (scanner) price and sales data, we find the following. (i) Danish firms lowered prices but kept the product mix the same. (ii) Non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles. (iii) Non-Danish firms chose to introduce products that were similar to the Danish products in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.