Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms

What accounts for the diversity and limited concentration that has long characterized the organization of the advertising agency industry? This question is addressed by treating an advertising agency as a multiproduct firm. The firm's product line or service mix is defined in terms of the set of different media categories where an agency places the advertising messages that it creates on behalf of its clients. Evidence is presented indicating that the structure of demand and costs in the advertising agency industry conforms to the conditions that MacDonald and Slivinski showed were required for an industry to sustain an equilibrium with diversified firms. Building on this framework, we formulate a set of three hypotheses relating to the realization of product-specific scale and scope economies. The first two hypotheses posit that given low fixed costs and minimal entry barriers, both media-specific scale and scope economies are available and can be exploited by relatively small-size agencies. The third hypothesis suggests that large agencies may experience diseconomies of scope as a consequence of excessive diversification induced by two pervasive industry institutional phenomena: (1) “bundling” of agency services to match client demand for a mix of media advertising, and (2) “conflict policy,” which prohibits an agency from serving competing accounts and operates as a mobility constraint. Utilizing a multiproduct cost function, we estimate media-specific scale and scope economies for a cross section of 401 U.S. agencies in 1987. The results obtained support the set of three hypotheses outlined above. The paper concludes with a discussion of the implications of these findings for the restructuring currently underway in this industry.     

Impacts of Patent Expiry on Daily Cost of Pharmaceutical Treatments in Eight OECD Countries, 2004–2010

Variability in regulatory frameworks, industrial policy, physician/pharmacy autonomy, brand/generic distinctions, and the practice of medicine contribute to ambiguous interpretations of cross-country pharmaceutical cost comparisons. Here, we report cross-country comparisons that: (i) focus on ten therapeutic classes experiencing patent expiration and loss of exclusivity 2004–2010 in eight industrialized countries; (ii) convert revenues and unit sales to cost per day of treatment and number patient days treated using the World Health Organization’s Defined Daily Dosage metrics; (iii) compare patterns in costs per day of treatment with price index measures based on average price per day of treatment for each molecule computed over all molecule versions; (iv) utilizing econometric methods, model and quantify various factors affecting variations in daily treatment price indexes such as national regulatory and reimbursement policy changes, physician/pharmacy autonomy, and other factors; and (v) simulate changes in expenditures by country and therapeutic class had counterfactual policies been implemented.     

Return Guarantees with Delayed Payment

Abstract. A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor that is granted with respect to the delayed payments can either be deterministic or equal to the (stochastic) bank account. It turns out that the common choice of a deterministic accumulation factor gives rise to problems concerning the pricing and the risk management of the insurance contract.     

Interorganizational relationships and hospital financial performance: a resource-based perspective

This study follows a resource-based theory perspective and aims to analyze the interorganizational relationships between hospitals and outpatient physicians, and hospital financial performance. In the light of increasing interdependence among healthcare providers which has made the coordination of service provision more complex, such relationships could be considered a resource for hospitals that lead to higher performance. In this study, the results from a survey of medical directors were combined with financial performance indicators of their hospitals. The results show that having effective interorganizational relationships is positively associated with the hospital's profitability. This finding emphasizes the importance of an investment in interorganizational relationships from the hospital's point of view.     

Understanding farmers' decision making processes and improving managerial assistance

Few studies have been made of how farmers make decisions. Most research and teaching has focused on the decision event, not the whole process. Current knowledge of the decision making process is reviewed and described as a set of eight functions or elements: values and goals, problem detection, problem definition, observation, analysis, development of intention, implementation, and responsibility bearing. The relevancy of this view of farmers' decision making behavior is tested through a series of case studies. Based on these observations, the conceptual model of the decision process is revised to include four phases and four subprocesses. The four phases are problem detection, problem definition, analysis and choice, and implementation. The four subprocesses are searching and paying attention, planning, evaluating and choosing, and checking the choice. In addition, we note that farmers prefer the ability to continually update their evaluation and plans, a qualitative vs. quantitative analysis, a “quick and simple” vs. detailed and elaborate analysis, small tests and incremental implementation, and feed forward and compensation vs. post-implementation evaluation. Implications of this fuller view of the decision making process for management assistance are discussed.