A theory of global strategic alliances: The case of the global auto industry

The theory articulated in this paper suggests that the desire to reduce demand and competitive uncertainty are two separate, important motives for alliance formation. Taking this as a starting point, we predict the configuration of horizontal alliances that we might expect to observe within an industry when firms experience these uncertainties to different degrees. An empirical test of this theory using data from the global auto industry yields results consistent with the view (1) that alliances are a device for reducing both the uncertainties that arise from unpredictable demand conditions and those that arise from competitive interdependence, and (2) that variation of demand uncertainty and competitive uncertainty across firms explains differentials in both the intensity and structure of their horizontal alliance activity.     

Testing for abnormal security-price performance under conditions of event-period uncertainty

This paper examines an event study test procedure based on cumulative average residuals (CARs) and a boundary-crossing probability for Brownian motion. The boundary-crossing test procedure is designed to detect abnormal security-price performance under conditions of event-period uncertainty. Simulations with daily security-return data show that the boundary-crossing test is well specified under the null hypothesis and has good power properties under the alternative hypothesis of abnormal security-price performance distributed over an event period of uncertain length.     

A longitudinal study of the cause and consequences of changes in diversification in the U.S. pharmaceutical industry 1977–1986

The paper hypothesizes that diversification by firms based in the pharmaceutical industry during the 1977-86 time period was primarily undertaken to reduce the risks associated with being dependent upon a technologically dynamic environment. Consistent with this non-efficiency motive for diversification, declining economic performance is predicted. A longitudinal empirical analysis provides support for these propositions.     

Who's in charge of the central city? The conflict between efficiency and equity in the design of a metropolitan area

A circular metropolitan area consists of a central city surrounded by a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show that (1) there typically exist two equilibria: one in which the poor form the voting majority in the central city and the other in which the rich form the majority in the central city; (2) there is an efficiency vs. equity trade-off as to which equilibrium is preferred; and (3) if the central city contains only poor households, equity favors expanding the central city to include rich households. The third result arises not because of a fiscal subsidy from rich to poor households induced by a property tax but rather because of a change in house price capitalization.     

Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on Ultimatum Bargaining

Abstract. On 11 May 2001, readers of the Berliner Zeitung were invited to participate in an ultimatum bargaining experiment played in the strategy vector mode: each participant chooses not only how much (s)he demands of the DM1,000 pie but also which of the nine possible offers of DM100, 200, …, 900 (s)he would accept or reject. In addition, participants were asked to predict the most frequent type of behavior. Three randomly selected proposer–responder pairs were rewarded according to the rules of ultimatum bargaining and three randomly chosen participants of those who predicted the most frequent type of behavior received a prize of DM500. Decisions could be submitted by mail, fax or via the internet. Behavior is described, statistically analyzed and compared to the usual laboratory ultimatum bargaining results.     

Price rigidities and institutional variations in markets with posted prices

Summary Standard laboratory posted-offer markets respond slowly and incompletely to demand shocks. In these one-sided markets, where sellers control the setting of prices, very little information is transmitted via the process of exchange. For this reason, traders have trouble distinguishing randomness in their own experience from changes in market fundamentals. This paper reports the results of twelve laboratory markets conducted to assess whether some common variants to standard posted-offer rules can correct the adjustment deficiences. Although discounting, multiple postings and excess demand information all improve performance, we find that response remains poor, and efficiencies low.Support for this research was provided by the National Science Foundation (SBR 9319842 and SBR 9320044), and the University of Virginia Bankard Fund. Data are archived at FTP address: fido.econlab.arizona.edu. We wish to thank Charles Plott and Shyam Sunder for useful comments on an earlier draft of this paper. The usual disclaimer applies.     

Globalization frustrated: The case of white goods

This paper challenges the common view that mature industries are always ripe for global strategies. Based on data from the European Domestic Appliance industry, this paper shows how changing economic conditions can diminish the value of global strategies. Critical in these shifts were simultaneous rises in demand for variety (that eroded the benefits of scale and continental market share) and decreases in manufacturing scale (that permitted new supply options), which reduced the extent of the strategic market to national dimensions. They added complexity that decreased the profitability of the global players and increased that of national strategies. The fluctuating fortunes of leading firms are shown to have been caused primarily by choices of strategy, not by national factor costs.     

Trade uncertainty and the two-step procedure: The choice of numeraire and exact indexation

Summary In a small open economy it is optimal to first maximize national income and second choose the best consumption point.The same two-step procedure under (quantitative) uncertainty is suboptimal if one of the goods is used as numéraire. Optimality is restored however, if nominal prices are deflated by the exact price index. Hence there is equivalence between the appropriate two-step procedure and the introduction of a stock market under uncertainty (Diamond 1967) under ideal circumstances.I would like to thank, without implicating, Peter van Bergeijk, Steven Brakman, Willem Buiter, Richard Gigengack, Jean-Marie, Viaene, Casper de Vries and an anonymous referee for useful comments and Angelique van Haasteren and Martijn Herrmann for graphical assistance.