Market Power and Interest Rate Spreads in the Caribbean

This paper investigates the determinants of the high bank spreads observed in the Caribbean over the financially liberalised period of the 1990s. A theoretical model is formulated and tested using panel data. Among other factors, market power is found to be one of the main influences on these large spreads. A major conclusion of the paper is that to reduce interest rate spreads, alternatives to commercial banks' loans should be encouraged, and the recent move to impose monetary regulations on non-banks be discouraged.     

The price of competitiveness in competitive pricing

This study examines how pricing decisions might be improved. We test the hypothesis that managers have a tendency to overcompete by comparing the performance of managers with the performance of computerized strategies in a Prisoner’s Dilemma pricing experiment. We find that the subjects in our study obtain lower profits than matched computer strategies. The subjects appear to value relative performance against competitors, even when they are explicitly instructed to maximize profits and are compensated based on profits. The implication for managers is that pricing to maximize profits may require tolerating the strong performance of competitors, even to the point of accepting a lower profit than some or all the competitors. If competitiveness means an adversarial, “zero-sum game” view of one’s competitors, then the price of competitiveness in competitive markets such as those in our experiment may be lower profits. Being less competitive may be more profitable. His major areas of research are pricing competition and channels of distribution. His research has been published inMarketing Letters andJournal of Marketing Channels. He has also cowritten a chapter on wholesaler liability for the bookWholesale Distribution Channels: New Insights and Perspectives, edited by Bert Rosenblum. where he directs Vanderbilt’s Center for Services Marketing. His 1995 article “Return on Quality (ROQ): Making Service Quality Financially Accountable” (written with Anthony Zohorik and Timothy Keiningham) won theJournal of Marketing’s Alpha Kappa Psi award for the article that had the greatest impact on the practice of marketing. He has also won best article awards from theJournal of Advertising and theJournal of Retailing. He serves on the editorial boards of seven journals, includingMarketing Science and theJournal of Marketing Research. His books includeService Marketing, Return on Quality, Advertising Media Models, Service Quality, andReadings in Service Marketing.     

The stability of decision making in committees: The one-core

We study the stability of decision making in committees. A policy proposal introduced by a committee member is either adopted or abandoned in favor of a new proposal after deliberations. If a proposal is abandoned, it is in spite of the committee member who introduced it, who does not cooperate in any effort to defeat it. Shenoy (1980) proposes the one-core as a solution concept for this game, and shows that this solution may be empty. We provide a necessary and sufficient condition for the existence of a stable policy under the majority rule. This result highlights a trade-off between the size of a committee, the number of competing policy options, and the existence of a stable outcome. Our findings imply a tension between political stability and the existence of a large number of competing interests in democracies.     

The Impact of Business Process Complexity on Business Process Standardization

Today??s organizations are struggling with increasing business process complexity and face serious problems when standardizing business processes. A?possible strategy seems to be to enhance standardization efforts in order to ensure standardization success. In this paper, we analyze the triangle relationship between standardization effort, business process complexity, and business process standardization. We test the hypotheses that higher business process complexity is related to higher standardization effort and lower business process standardization as well as that higher standardization effort is related to higher business process standardization. We report on the development and testing of a conceptual model that allows to understand the impact of business process complexity on business process standardization and standardization effort. Findings from a survey among 255 business process management experts are used to evaluate our hypotheses. Our results suggest that business process complexity has to be considered as an important driver of standardization effort and constrains business process standardization. Moreover, we show that higher standardization effort cannot compensate for higher business process complexity to ensure business process standardization.     

Human capital in the internationalization of family firms

Research concerning the influence of human capital (HC) on internationalization strategies typically highlights skills displayed by business executives. This article is one of the few studies that examines the values, attitudes, and capabilities related to the HC of international companies. Our study attempts to understand the role that HC plays in the international commitment (IC) achieved by family and nonfamily firms and whether the HC of family firms (FFs) can be considered a source of competitive advantage in pursuing an international strategy. Partial Least Squares method is used for analyzing data collected from 270 Spanish firms. Results show HC differs between family and non‐FFs and plays a crucial role in the international strategy of FFs. Specifically, professional experience, training, and educational level, the degree of market and industry knowledge, specific skills to work in international markets, and concern for employees are superior in FFs, resulting in the achievement of higher levels of IC when compared to non‐FFs. The results should encourage managers and/or owners of these companies to exploit and effectively govern specific human resource strengths when they enter and experience growth in other markets.     

Towards a differentiated modeling of origin effects in hedonic analysis: An application to auction prices of specialty coffee

Origin matters. This has been shown by numerous studies using either discrete choice or hedonic approaches to derive implicit prices for origin as a product attribute. In most of the hedonic studies, intercept dummies were introduced for specific regional origins and statistically significant coefficients of those variables were seen as an indication of either a superior or inferior reputation, compared to products from other origins. We argue that hedonic pricing models of this type may be too simple to detect the true origin effects if assessments of a product’s sensory quality are available and interact with prior beliefs about reputation. Based on a supply-and-demand framework to explain auction prices, a reduced-form hedonic pricing model is suggested that includes intercept- as well as slope-dummy effects of the regional origin. Because reputation and the objective product quality are particularly important for markets of differentiated, high-quality foods and beverages, we analyze electronic auction markets for specialty coffees. The findings for the Cup of Excellence data reveal that it is important to distinguish reputation, sensory quality, and their interaction as determinants of coffee auction prices, as well as varying origin impacts across market segments.     

Time variation in U.S. wage dynamics

Supply and demand shocks had much stronger long-run effects on nominal wages and prices during the “Great Inflation”. For supply shocks, there is even a sign switch in the nominal wage response. Before and after the “Great Inflation”, nominal wages moved in the same direction as real wages and in the opposite direction of the price level, whereas nominal wages and prices moved in the same direction at longer horizons after the shock in the 1970s. Estimation of a DSGE model shows that these results reflect changes in the degree of wage indexation over time, which was considerably higher during the “Great Inflation”.     

Some nonstandard stochastic volatility models and their estimation using structured hidden Markov models

We introduce a number of nonstandard stochastic volatility (SV) models and examine their performance when applied to the series of daily returns on several stocks listed on the New York Stock Exchange. The nonstandard models under investigation extend both the observation process and the volatility-generating process of basic SV models. In particular, we consider dependent as well as independent mixtures of autoregressive components as the log-volatility process, and include in the observation equation a lower bound on the volatility. We also consider an experimental SV model that is based on conditionally gamma-distributed volatilities.Our estimation method is based on the fact that an SV model can be approximated arbitrarily accurately by a hidden Markov model (HMM), whose likelihood is easy to compute and to maximize. The method is close, but not identical, to those of Fridman and Harris (1998), Bartolucci and De Luca (2001, 2003) and Clements et al. (2006), and makes explicit the useful link between HMMs and the methods of those authors. Likelihood-based estimation of the parameters of SV models is usually regarded as challenging because the likelihood is a high-dimensional multiple integral. The HMM approximation is easy to implement and particularly convenient for fitting experimental extensions and variants of SV models such as those we introduce here. In addition, and in contrast to the case of SV models themselves, simple formulae are available for the forecast distributions of HMMs, for computing appropriately defined residuals, and for decoding, i.e. estimating the volatility of the process.