Partial credibility and policy announcements: The problem of time inconsistency in macroeconomics revisited

This paper studies the credibility of policy announcements in macroeconomics. This issue is exemplified by the problem of monetary policy design in light of an expectations-augmented Phillips curve. In contrast to reputational models of the repeated games literature, the credibility problem between the central bank and the private sector, which results from the policymaker's temptation to create surprise inflation to raise employment, cannot be eliminated. The paper shows that credibility in any sequential equilibrium is generally only partial, in that market participants do not fully believe policy announcements of low inflation rates, even if forthright policies have been implemented in all periods. Indicating reputation-building, credibility improves over time. The example is then used to show the policy implications of partial credibility.     

Does vertical integration affect firm performance? Evidence from the airline industry

We investigate the effects of vertical integration on operational performance. Large U.S. airlines use regional partners to operate some of their flights. Regionals may be owned or governed through contracts. We estimate whether an airline's use of an owned, rather than independent, regional at an airport affects delays and cancellations on the airline's own flights out of that airport. We find that integrated airlines perform systematically better than nonintegrated airlines at the same airport on the same day. Furthermore, the performance advantage increases on days with adverse weather and when airports are more congested. These findings suggest that, in this setting, vertical integration may facilitate real‐time adaptation decisions.     

The Power of Innovativeness in Manufacturer–Retailer Relationships

ABSTRACT

Purpose: Retailers often challenge manufacturers through aggressive store brand policies and severe listing constraints. This study investigates manufacturer innovativeness as a managerial lever to shift the power balance between manufacturers and retailers.

Methodology/approach: Using data from 277 senior managers of Swiss and German consumer goods manufacturers and analyzing these data with structural equation modelling, the authors test hypotheses about the impact of manufacturer innovativeness on manufacturer–retailer relationship characteristics (i.e., retailer dependency, store brand aggressiveness, and listing constraints).

Findings: The study demonstrates that manufacturer innovativeness enhances retailer dependency, which in turn positively affects overall manufacturer performance. This relationship can be explained further: By increasing retailer dependency, manufacturers suppress retailers’ store brand aggressiveness and attenuate retailers’ listing constraints. Store brand aggressiveness affects overall manufacturer performance through listing constraints.

Research implications: Identifying levers such as innovativeness that assist manufacturers in fostering their power over retailers provides a new mode for understanding how manufacturers can influence the balance of power between manufacturers and retailers. The study provides support for the approach/inhibition theory of power on the inter-organizational level. Organizations with increased power are assumed to have approach-related tendencies and act in goal-consistent manner, whereas organizations with reduced power are assumed to develop the tendency to pursue inhibition-related actions, e.g., attending to threats. Furthermore, this study identifies channel relationship characteristics such as retailer dependency as a mediating path between manufacturer innovativeness and performance.

Practical implications: Managers need to strengthen the firm’s innovative capacity to enhance the performance of their companies. By developing the capability to provide radical innovations, manufacturers are able to enhance their performance not only directly but also indirectly by strengthening the manufacturer’s position with regard to retailers. This study underscores the relevance of innovativeness for strengthening the manufacturer’s position in its relationship with retailers that avoids problems with aggressive store brands and constrained listing conditions.

Originality/value/contribution: This study proposes manufacturer innovativeness as a managerial lever to shift the power balance between manufacturers and retailers.