Effects of FTA Provisions on the Market Structure of the Korean Automobile Industry

The Korean passenger car market is dominated by a few domestic producers. In this paper, we investigate whether this market structure is the result of import tariffs and taxes that penalize foreign manufacturers. Our counterfactual simulation under two FTA scenarios shows that the market shares of imported and domestic cars show minimal adjustments, suggesting that import tariffs and taxes may not explain the lack of penetration of import cars in Korea. We predict changes in consumer surplus and discuss the policy implications of our findings.     

High‐end Encroachment Patterns of New Products

Previous research describes two key ways in which a new product may encroach on an existing market. In high‐end encroachment, the new product first sells to high‐end customers and then diffuses down‐market; in low‐end encroachment, the new product enters at the low end and encroaches up‐market. This paper focuses on high‐end encroachment, which can further be broken down into three subtypes, which are called the immediate, the new‐attribute, and the new‐market forms of high‐end encroachment. This paper makes three key contributions. First, it provides a sound theoretical underpinning for the three distinct subtypes of high‐end encroachment—a linear reservation price curve model (LRPCM) is used to establish this theoretical foundation. Second, this paper delineates and illustrates four different ways the high‐end new‐market diffusion process may progress over time. These four are: (1) the traditional type, where the new product diffuses relatively slowly and methodically over time; (2) the fad scenario, where the new product opens a new market but then fizzles out after a relatively short period of high sales; (3) the rapid diffusion outcome, where the new product opens a new market and then rapidly diffuses down‐market; and (4) the prolonged‐niche type, where the new product purposefully restricts itself to its own niche rather than diffusing down‐market. The third key contribution of this paper is to offer managerial insights into the new‐market high‐end encroachment process by discussing two short case studies; namely, a retrospective look at the introduction of the iPhone, and a prospective look at Tesla's challenges in growing the market for its electric car. With regard to the iPhone, it helps explain why Apple precipitously dropped the price of the iPhone by one third only 68 days after its introduction. With regard to Tesla, it discusses how Tesla must leverage the revenues that stem from its current high‐end pricing power. Tesla must be able to progress down the learning curve fast enough so that it can create a virtuous cycle; a cycle in which cost reductions and technology improvements lead to price reductions and increased sales, which in turn lead to further cost reductions. At the conclusion of the paper, a step‐by‐step approach is offered to aid in determining which type of encroachment should be pursued and in determining how the encroachment pattern will eventually develop. The encroachment framework and the step‐by‐step approach are intended to help managers better assess and mitigate the risks inherent with a new product introduction.     

Optimal retirement with unemployment risks

This paper investigates the optimal retirement of an individual in the presence of involuntary unemployment risks and borrowing constraints in a complete market with frictions. We use an intensity model and loading factors to illustrate the involuntary unemployment risks and frictions in unemployment insurance markets. Using reasonably calibrated parameters, we observe that high involuntary unemployment intensity and loading factors could be important explanations for the empirical findings emphasized in recent studies. We also find that an individual with high leisure demand after retirement reduces consumption during retirement and increases stockholdings as retirement time approaches.     

A note on the spread between the rates of fixed and variable rate loans

An expression of the optimal expected spread between the rates of fixed and variable rate loans offered by a competitive risk-averse bank is derived. We find that the expected spread varies directly with the volatility of the funding cost, the bank's degree of risk aversion, and the competitive profit margin on variable rate loans. Our analysis also characterizes the optimal mix of fixed and variable rate lending in a bank's loan portfolio.     

Fiscal policy in Korea: Before and after the financial crisis

This paper examines the role of fiscal policy in the Korean financial crisis and the subsequent recovery from it. We specifically address three questions: Was Korea’s fiscal policy prior to the crisis conservative, or were there large hidden contingent liabilities not captured in the official budget balance? What were the main characteristics of fiscal policy in stimulating and restructuring the economy under the IMF stabilization program in Korea? How effective were the financial guarantee and public investment programs as part of the counter-cyclical fiscal policy in the recovery process from the crisis? To address these questions, we re-estimate the consolidated budget deficits in Korea by incorporating the quasi-fiscal activities of public funds and public enterprises using their micro balance-sheet data from 1972 to 2003.     

The Effects of Trading Methods on Volatility and Liquidity: Evidence from the Taiwan Stock Exchange

This study contrasts the call and continuous auction methods using Taiwan Stock Exchange data. Volatility under the call market method is approximately one-half of that under the continuous auction method. The call market method is more effective in reducing the volatility of high-volume stocks than low-volume stocks. This contradicts conventional wisdom which suggests that the call market method is superior for thinly traded stocks, while the continuous auction method is preferred for heavily traded stocks. The call market method does not impair liquidity and price discovery. The call market appears more efficient than in the continuous auction market.     

Can quote competition reduce preferenced trading? A reexamination of the SEC’s 1997 order handling rules

In 1997, the SEC implemented the new order handling rules (OHRs) on the NASDAQ. We observe that some uncompetitive positions gained market share without improving quote competitiveness after the implementation of the OHRs. Also observed is a significant decline in the sensitivity of trading volume to quote competitiveness, indicating lower incentive for NASDAQ dealers to engage in quote competition in the post‐OHR regime. We find that positions that gained trading volume without improving quote competitiveness were less competitive and were more closely associated with stocks showing low information asymmetry, which suggests that preferenced trading might be responsible for the decline in the trading volume sensitivity. Examining entries and exits around the periods of adopting OHRs, we observe net entry of uncompetitive positions and net exit of competitive positions, which indicates that preferenced trading crowded out quote competition subsequent to the OHRs. Our findings suggest that forcing intense quote competition alone produced an unwanted effect that preferencing emerged as a more attractive alternative to quote competition.