Brand competition in CPG industries: Sustaining large local advantages with little product differentiation

In direct competition between national brands of consumer packaged goods (CPG), one brand often has a large local share advantage over the other despite the similarity of the branded products. I present an explanation for these large and persistent advantages in the context of local competition on perceived quality or brand image. The main result of the analysis is a relation between varying degrees of product similarity and equilibrium outcomes of local share advantages. Namely, I find that asymmetric quality positioning and associated local share advantages emerge especially when competing brands are objectively similar. Conversely, local share asymmetries based on brand positioning occur less when brands are dissimilar. This paper provides two reinforcing intuitions for this result. First, if brands are objectively similar, different levels of investment in local quality perceptions co-exist in equilibrium in the same market, because this investment is often borne as fixed cost. Also, early movers will invest in high perceived quality, whereas late movers have less incentive to invest because of demand sharing and increased price competition. Second, if the local advantages are shared by competitors across markets, the persistence of these advantages is reinforced by multimarket contact. Even when local brand building is free, firms may not want to improve perceived quality in their “weak” markets if it initiates retaliation by the competition in their “strong” markets. The increase in multimarket profits from collusion is large when the products are similar, because price competition looms large.

Entry,spending and firm size in a stochastic R&D race

A model is developed to explain participation and spending on R&D as a function of firm size. The R&D process is represented as an n-participant race with a Poisson incidence of success, where the winner takes all during some protection period. Four effects of scale are taken into account: a sunk fixed threshold cost of entry; a flow cost of expenditure for the duration of the race, which affects both the profitability of winning and the speed of development (the Poisson parameter), both with diminishing returns; allowance for an effect of firm size on the effectiveness (profit/cost) of development. The operational decision concerning the level and intensity of commitment in case of participation is modelled in a traditional fashion as the maximization of expected returns. The strategic decision whether or not to participate (at an optimal level and intensity) is modelled as a stochastic process of deliberation between different makers and influencers of decisions in the firm. The latter is to be seen as an introduction of the political and resource dependence views of organisations. The resulting model of R&D participation as a function of firm size is tested empirically on data from an R&D survey in the Netherlands.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

Price predictors in an extended hedonic regression framework: An application to wholesale cattle markets in Ethiopia

Livestock markets influence income generation for producers, but also accessibility and affordability of highly nutritious animal-sourced foods for consumers. Despite their importance, the functioning of livestock markets in lower-income countries is poorly understood and rarely studied compared to more developed countries. This study analyzes wholesale cattle markets in Ethiopia using a uniquely rich large-scale dataset covering both prices and cattle characteristics in 39 markets (in both highland and lowland areas) over a 10-year period, and hedonic regression models structured to understand both cattle price formation and seasonal and secular price dynamics. We show that cattle prices are influenced by a wide range of factors, including proxies for meat quality, religious fasting practices, climate-based seasonality but also climate shocks and availability of grazing land, competition from animal traction services, and rising consumer incomes. However, the implied effects of these factors are often significantly different in highland mixed crop-livestock areas compared to agro-pastoralist lowland areas, emphasizing the dualistic nature of cattle markets in Ethiopia. The analyses help inform the systemic challenges that Ethiopia will need to overcome to meet rising demand for beef products in the face of sustained income and population growth, as well as the adverse effects of climate change.     

The dynamics of price discovery for cross-listed shares: Evidence from Australia and New Zealand

This paper studies the dynamics of price discovery for markets with bilateral cross-listings. Using a sample of four Australian stocks cross-listed in New Zealand and five New Zealand stocks cross-listed in Australia for the period January 2002 to December 2007, we assess Hasbrouck (1995) information shares and Grammig et al. (2005) conditional information shares over time. We observe that in both cases the home market is dominant in terms of price discovery. However, when studying price discovery over time, we find that the importance of the Australian market (the larger of the two markets) is increasing for both Australian and New Zealand domiciled firms. Finally, using panel regression analysis, we find that the growth in the importance of the Australian market is positively related to the growth in the size of the firm and negatively related to the size of the percentage spread in the Australian market, implying that as firms grow larger and their cost of trading in Australia declines, the Australian market becomes more informative.     

Large Firms and Knowledge Flows in the Dutch R&D System: A Case Study of Philips Electronics

This paper uses data on patent-to-patent citations and patent-to-science-literature citations to study the spillover network of companies and research institutes around Philips Electronics. The theoretical section of the paper surveys the literature on innovation regimes and regional systems of innovation, and uses this to derive a number of testable hypotheses on the Philips network. The main findings of the paper are that the importance of local firms in the technology network around Philips is small, but the impact of local (semi-)public institutes is larger. Also, it is found that large firms generate a large part of the scientific literature that is referred to in Philips patents.     

Correction to: Conservative solutions for progress: on solution types when combining QCA with in‑depth Process‑Tracing

Quality & Quantity -     

Science-based entrepreneurship education as a means for university-industry technology transfer

This paper explores the potential of university-industry technology transfer through science-based entrepreneurship education (SBEE). The scientific literature focuses mostly on enabling university-industry technology transfer via university-industry collaboration in research, and not so much in (science) education. The paper identifies four strands of relevant literature for further theorizing SBEE principles to research its contribution to industry-technology transfer: 1. Embedding entrepreneurship education in universities; 2. Balancing theory and practice of entrepreneurship education; 3. Cultivating an entrepreneurial mindset through entrepreneurship education; and 4. Creating spin-offs through entrepreneurship education. One of the main theoretical contributions of this paper is, that SBEE is different from regular entrepreneurship education in its need for being firmly embedded in a science, technology and R&D environment, both within and outside the university. This is important in order to give SBEE students the opportunity to gain experience with handling the hurdles for successful university-industry technology transfer. The main empirical finding is that elements in the program, related to for example the balance between teaching entrepreneurship through theory and experiential learning, are not systematically covered. It means that fundamental questions such as: Can entrepreneurship be indeed taught? Which elements of entrepreneurship can be taught through theory, and which ones must be experienced in practice? are currently left unanswered. Systematic coverage of these questions enables a better exploitation of the possibilities that SBEE offers for university-industry technology transfer.