Product line competition and price promotions

Besides its familiar demand-redistribution effect, price promotion by a multi-product firm creates cannibalization, as lowering the price of one variety may erode the profits of its other varieties. We study endogenous product line selection and price promotions in a duopoly. In equilibrium, the ex ante symmetric firms may offer asymmetric product lines with unequal length. The two-product firm is more profitable. The single-product firm offers a larger mean discount and promotes more (less) frequently than its competitor when the former’s unit cost is relatively low (high).     

Economics at the FTC: Hospital Mergers,Authorized Generic Drugs,and Consumer Credit Markets

Economists at the Federal Trade Commission pursue the agency’s competition and consumer protection missions. In this year’s essay, in antitrust, we discuss various aspects of our hospital merger analyses as well as the effects of authorized generic drugs on consumers and competition. In consumer protection, we describe two ongoing studies on the use of credit-based insurance scores to price homeowners insurance, and the accuracy of consumers’ credit reports that are provided by credit bureaus.     

Differences between odd number and even number response formats: Evidence from mainland Chinese respondents

Scholars have speculated that the Chinese may be more reluctant to express their opinions strongly and that this may be reinforced if the odd number response format with a mid-point option of “no opinion” or “neither agree nor disagree” is provided. This may undermine the quality of survey data because less variances or even inaccurate information will be collected. This study provides empirical evidence from 532 mainland Chinese employees in Beijing to test this speculation. These employees were randomly assigned to complete either an odd number or even number response format questionnaire. In contrast to the speculation, in a wide variety of measures that are relevant to the area of organizational behavior (OB) and human resource management (HRM), it appears that the odd number response format does not show systematic differences when compared with the even number response format. This result holds even for some sensitive measures of personal beliefs, evaluation of and judgments about employing organizations, supervisors, and colleagues. Given the increasing number of studies surveying Chinese and other Asian respondents, we call for further research on this issue.     

Earnings fraud: board control vs CEO control and corporate performance – 1992–2004

The turn of the millennium is associated with increased corporate fraud, largely attributed to the failure of corporate governance. The compensation committee is expected to minimize fraud by rewarding only appropriate CEO behavior. A causal modeling approach, the Directed Acyclic Graph, was used to estimate the structure of corporate fraud. Corporate fraud was measured as illegal earnings statement(s), not all restatements but only those found illegal. A major finding is that the CEO's stock‐option compensation motivates the CEO to commit corporate earnings fraud, while cash salaries and bonuses are only indirectly related to earnings fraud through those stock options. Copyright © 2010 John Wiley & Sons, Ltd.     

Peer‐group dependence in salary benchmarking: a statistical model

Although salary benchmarking is widely used to help set compensation, there has been a lack of attention to the statistical implications of this practice on compensation patterns of peer institutions. We adapt some empirical tools from spatial econometrics to analyze compensation decisions exhibiting peer‐group dependence, and apply the methods to compensation of administrators in Texas nursing facilities. We find evidence that this leads to dependence of administrators pay on average pay of administrators in ‘peer’ facilities, defined here as those having similar outlays on nursing services. This leads to a situation where changes in facility characteristics, such as the occupancy rate and the revenue received from Medicaid and from private‐pay residents, impact compensation of own‐institution administrators as well as that of administrators from other peer facilities. Our peer‐group model appears applicable to other areas of organizational, regulatory and behavioral research and can easily be implemented using publicly available software. Copyright © 2010 John Wiley & Sons, Ltd.     

The differential effects of job design on knowledge workers and manual workers: A quasi‐experimental field study in China

When Taylorism was discarded long ago, job enrichment emerged as a good alternative. Recent research, however, has pointed out the ineffectiveness of job enrichment. This study suggests that both approaches could be effective and looks at job nature as the moderator that can affect how the two approaches are applied. The authors' longitudinal quasi‐experimental field study in China found a significant interaction between worker type (knowledge workers [KWs] versus manual workers [MWs]) and job characteristics on employee outcomes. After enrichment, KWs experienced higher satisfaction and task performance, whereas for MWs, satisfaction and performance declined. This pattern of results suggests that both job enrichment and Taylorism are applicable depending on the job nature. In addition to contributing to job design theory, the present study also explored the unique attributes of KWs and provides practical suggestions as to how human resource managers can better motivate KWs. © 2011 Wiley Periodicals, Inc.     

Impacts of price and productivity changes on banana‐growing households in Uganda

This article compares the effects of changing market prices and farm productivity on the welfare of banana‐growing households in the Ntungamo district of Uganda. A heterogeneous‐agent model is applied via a series of mathematical optimization problems, to simulate production and consumption responses of 70 farm households surveyed in 2006. Results show that a given increase in productivity has a greater impact on poverty alleviation than that same increase in market prices. Despite the effects of productivity gains being comparable across different types of household groups, price improvements primarily benefit the incomes of households who are involved in rural producer organizations, who are located closer to markets, and who sell at the market.     

Pressler's indicator rate formula as a guide for forest management

In this paper, it is shown that Pressler's indicator rate formula is also the optimal condition for the determination of the optimal harvest age under the generalized Faustmann formula. In addition, a modern treatment of the quantity increment, quality increment, and price increment is presented. Pressler's indicator rate formula is then applied to determine the optimal harvest age in a dynamic world of unanticipated changes.     

Further generalization of Faustmann's formula for stochastic interest rates

Markov decision process (MDP) models generalize Faustmann's formula by recognizing that future stand states, prices, and interest rates, are not known exactly. Buongiorno (Forest Science 47(4) 2001) presents a dynamic programming and a linear programming formulation of the MDP model with a fixed interest rate. Both formulations are generalized here to account for a stochastic interest rate. The objective function is the expected present value of returns over an infinite horizon. It gives, like Faustmann's formula, the value of the land and the eventual standing trees. The changes between stand states, prices, and interest rate, are represented by Markov chains. Faustmann's formula is a special case where the change from one state to another has 0 or 1 probability, and the interest rate is constant. The MDP model applies to any stand state, even- or uneven-aged, and the best decisions are tied uniquely to the current system state. An example shows the effects of recognizing variations in interest rate on the land expectation value, and the cost of ignoring them.     

Oil shocks and monetary policy rules in emerging economies

We examine the effects of shocks in the oil market on key macroeconomic variables in small open economies using a dynamic stochastic general equilibrium model with sticky prices and imperfect competition under different monetary policy rules. The numerical solutions show that the types of exchange rate regimes and monetary policies could partly explain the trends in macroeconomic volatilities considering negative shocks to oil supply (Hamilton, 1983) and positive shocks to oil demand (Kilian, 2009). These findings are confirmed in vector autoregressive responses for Chile and Israel with inflation targeting under flexible exchange regimes and Hong Kong with fixed regime.