Entry, Exit and Establishment Survival in UK Manufacturing

We study entry, exit and survival of UK manufacturing establishments from 1986 to 1991 using the newly released ARD database. We document patterns of entry and exit across industries and over time. We estimate an augmented Cox proportional hazard to examine the survival of new plants in the UK in this period. We find interactions between survival, size and age of establishment that differ between establishments that are singles and part of a group. We speculate that this finding may be consistent with market selection models based on learning.     

INFORMATION EXCHANGE AND COMPETITION IN COMMUNICATIONS NETWORKS*

We develop a model of information exchange between calling parties. We characterize the equilibrium when two interconnected networks compete by charging both for outgoing and incoming calls. We show that networks have reduced incentives to use off‐net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange. This breakdown disappears if operators are allowed to negotiate reciprocal access charges. We also study the relationship between sending and receiving retail charges as a function of the level of access charges. We identify circumstances where private negotiations over access charges induce first‐best retail prices.     

规模报酬递增的第二种机制:为什么重复建设与规模效率的提高可以并存

本文探讨了政府竞争格局下行业规模报酬递增的机制。我们发现,经典的规模报酬递增机制会导致垄断竞争条件下的厂商均衡数目减少,因而规模效率的提高与重复建设不可能同时出现。但是地方政府降低厂商固定成本的竞争却可以在重复建设的同时带来规模效率的提高,这就是本文所发现的政府竞争格局下行业规模报酬递增的第二种机制。我们通过DEA-VRS模型和DEA-Malmquist指数法初步证实了此过程。实证研究发现,在控制了干中学和货币外部性之后,地区行政垄断指数与规模效率的动态变动呈现显著的倒U形关系。     

Inventory management with advance supply information

We consider a single stage inventory system with stochastic capacity. The manager receives forecasts from the upstream source about future capacity availability within an information horizon, referred to as “advance supply information”. We study two main questions: (i) How can advance supply information be utilized when making replenishment decisions? (ii) What is the value of such information sharing, compared to a fixed base-stock policy? We show that state-dependent base-stock policies are optimal. We develop easily computable and implementable heuristic policies. We numerically test the accuracy of the approximations and analyze the value of collaboration under various business scenarios.     

Innovation, Rent Extraction, and Integration in Systems Markets

We consider innovation incentives in markets where final goods are systems comprising two strictly complementary components, one of which is monopolized. We focus on the case in which the complementary component is competitively supplied and innovation is important. We explore ways in which the monopoly may have incentives to extract efficiency rents in the competitive sector, thus weakening or destroying incentives for independent innovation. We discuss how these problems are affected if the monopolist integrates into supply of the complement.     

From home country to home base: A dynamic approach to the liability of foreignness

We argue that the influence of the home country wanes as the firm increases its geographic reach. We introduce the concept of the “home base” to capture the effect of the set of countries in which the firm operates. We expect the dynamic liability of foreignness defined relative to the home base to be a better predictor than the static liability of foreignness defined relative to the home country. We also expect the diversity of foreign experience to increase foreign market entry. We find support for these hypotheses with data on Chinese listed firms investing abroad between 1991 and 2007. Copyright © 2014 John Wiley & Sons, Ltd.     

Revenue maximizing with return policy when buyers have uncertain valuations

This paper examines the optimal mechanism design problem when buyers have uncertain valuations. This uncertainty can only be resolved after the actual transactions take place and upon incurring significant post-purchase cost. We focus on two different settings regarding how the seller values a returned object (salvage value). We first study the case where the salvage value is exogenously determined. We find that the revenue maximizing mechanism is deterministic and “separable”. We illustrate that the optimal revenue can be implemented by a mechanism with a “no-questions-asked” return policy. In addition, we show that “linear return policies” are suboptimal when the hazard rates of initial estimates are monotone. We next examine the case where the salvage value is endogenously determined. We demonstrate that “separability” no longer holds and the “recall” of buyers is necessary in the optimal mechanism.     

Divesting ownership in a rival

We examine the consumer welfare effect of a firm's partial ownership of a competitor and compare the implications of alternative forms of divestiture. We identify conditions under which turning voting shares into non-voting shares is preferable to selling the shares to the firm's current shareholders (an option frequently chosen). We also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders. We provide additional theoretical results and apply them to the divestiture of Portugal Telecom's holdings in PTM.     

Harmonic Mean as an Approximation for Discounting Intraperiod Cash Flows

We examine the possible errors of various present value approximations that center on the widely used end-of-period convention in cases of intraperiod cash flows. We suggest a new formula for adjusting the end-of-period present value based on the harmonic mean of the end-of-period and beginning-of-period present values. This approximation minimizes the maximum possible error in general. We give useful nomograms for several cash flow patterns to assess and correct for the errors of the different approximation methods. We find that the harmonic approximation has acceptable errors for most of these patterns. The findings are illustrated in a realistic example.     

Do Tax Increment Finance Districts Stimulate Growth in Real Estate Values?

We use data on all Wisconsin municipalities during the period 1990–2003 to study the effect of tax increment finance (TIF) on economic development. We use appropriate statistical techniques to measure the impact of TIF and control variables on aggregate property values. We also examine the possibility communities that use TIF are self‐selected. We find little evidence that TIF has led to significant increases in aggregate property values or that TIF increases the total value of residential and manufacturing property within a community. Surprisingly, we find positive impacts for commercial TIF districts.     

A radical constructivist approach to boundaries in business network research

We contribute to the business network literature by presenting and introducing a radical constructivist research approach, in which we foreground sharing the context of an actor's understanding of interaction. We elaborate the approach by illuminating the problematic issue of boundaries in business network research. We conceptualize boundaries as inter-action spaces and times where differences are created, maintained and changed in a physical-social setting. We make a distinction between boundaries and borders, with the latter being simply representations. We undertake a review of select realist and social constructivist business network literature to distinguish and elaborate the potential of a radical constructivist perspective, as an alternative approach. The approach appears most useful when the researcher and interview participant do not have a convergent understanding of the research phenomenon. Further, a radical constructivist approach is eminently suitable for settings where inter-action conditions and content are changing, for example in times of crisis or network change. We present the metaphors of castles and frontiers, as illustrative research tools suitable for a radical constructivist study of boundaries in business networks.     

Entry deterrence and experimentation under demand uncertainty

We examine the effect of a threat of entry on experimentation about demand by an incumbent monopolist when there is a fixed cost of entry. We show that experimentation may itself be used as a tool for entry deterrence and derive conditions under which experimentation reduces the probability of entry. These conditions depend on the entry rule which in turn depends on entry costs. We show that if experimentation does not deter entry, the monopolist incumbent experiments less. We also characterize experimentation and entry in the linear-uniform example, and show that cost of entry and experimentation do not have a monotonic relationship.     

Actual and Preferred Working Hours

We use British panel data to investigate whether or not subjective data on desired labour supply provide information on future labour market behaviour. We find that, although men and women are able to adjust their work hours in line with preferences, this is greatly facilitated through within‐ and between‐employer job changes. We also find that hours constraints are significant determinants of leaving the labour market and within‐ and between‐employer mobility. We conclude that rigidities in the labour market exist and that these rigidities impair the welfare of employees.     

Collective Bargaining in the Canadian Public Sector, 1978–2008: The Consequences of Restraint and Structural Change

We study public‐sector bargaining and contract outcomes using Canadian data from 1978 to 2008. We have a number of interesting results, but our principal findings are from our analysis of wage settlements. We find that the essential services designation, which only allows non‐essential members of a bargain unit to strike, is associated with decreases in wages. Our estimates also suggest that there is an arbitration wage premium and that making adjustments to the ability to pay criterion used by arbitrators to determine awards does not affect this premium. We also discuss the implications of our estimates.     

INCENTIVES FOR CORRUPTIBLE AUDITORS IN THE ABSENCE OF COMMITMENT*

In the absence of commitment to auditing, we study the optimal auditing contract when collusion between an agent and an auditor is possible. We show that the auditor can be totally useless if the auditor's independence can be compromised with relative ease. Even very stiff sanctions on fraud will be unable to make auditing optimal. We then derive a demand for independent external auditing. We endogenize collusion cost as the cost from the risk of future detection. We also derive a justification for the focus of the recent audit reforms on penalties on CEOs in cases of audit fraud.     

Ex post Merger Evaluation in the U.K. Retail Market for Books

This paper evaluates the price effects of the merger of two major U.K. book retailers. We use a dataset containing monthly scanner data on a sample of 200 books in 50 local markets for four years around the merger. We compare the price changes after the merger in shops located in areas where both chains were present before the merger and in areas where only one chain was present. We also investigate the country‐wide effect of the merger. We find that the merger did not result in any price increase either at the local or at the national level.     

Linear demand systems for differentiated goods: Overview and user’s guide

Linear demand systems and quasi-linear quadratic utility models are widely used in industrial economics. We clarify the link between the two settings and explain their exact origin as it seems to be little known by practitioners. We offer practical recommendations to achieve consistency, tractability and a reasonable degree of generality when using the linear demand framework. We show that all tractable versions of the model used in practice are (almost) identical and have a mean-variance structure. We provide concise, ready-to-use formulae for the symmetric model. Finally, we revisit and extend the asymmetric model of Shubik and Levitan.     

Britain and BrExit: Is the UK more attractive to supervisors? An analysis of the wage premium to supervision across the EU

We studied which European Union (EU) economy was more attractive prior to Brexit for employees in supervisory positions. We estimate the extra wage that supervisors earn relative to their subordinates—the wage premium to supervision (WPS)—at different quantiles of distribution of wages for 26 European economies. We find that the UK rewards supervisors more than other EU economies. Moreover, the WPS increases with wage and so increases wage inequality. Over 10% of the WPS depends on the national economic context. We discuss the implications for immigration and policymakers in relation to the post-Brexit process.     

THE ROLE OF DIFFERENTIATION STRATEGY IN LOCAL TELECOMMUNICATION ENTRY AND MARKET EVOLUTION: 1999–2002*

We examine the role of differentiation among competitive local exchange carriers (CLECs) in nearly 1,200 U.S. cities in 1999 and 2002, before and after a valuation crash affecting communications firms. We test and reject the null hypothesis of homogeneous competitors. We also find strong evidence that differentiated CLECs account for both potential market demand and the business strategies of competitors when making their entry decisions. Finally, product heterogeneity in markets in 1999 helps predict how the structure of markets evolved through 2002. We conclude that the policy debate for local telecommunications regulation should account for differentiated behavior.     

Spillovers and the growth of local industries

In this paper we investigate the nature and directions of inter-industry dynamic linkages across Italian manufacturing sectors. We perform a very disaggregated analysis in order to identify, for each 3-digit industry, which composition of industrial activity is more conducive to growth. We find that diversity matters for growth, but each industry needs its own diversity. We provide some evidence of clustering of industries based on dynamic externalities. We find that many spillovers occur within input-output relationships. They often originate in downstream sectors favouring the growth of upstream industries. Lastly, the importance of spillovers does not depend on the technological intensity of the industry.