The Differential Impact of Accurate Product Cost Information in Imperfectly Competitive Markets: A Theoretical and Empirical Investigation*

Many researchers claim that costing systems that provide materially more accurate or precise cost reports have a strict value-enhancing effect on decisions (i.e., Cooper 1988, 1995; Cooper and Kaplan 1991; Christensen and Sharp 1994; Rogers. Comstock. and Pritz 1994; Swenson 1995; Gupta and King 1997). However, this study provides theoretical and empirical evidence that the value of more accurate cost information may be dependent upon the firm's competitive market structure, as well as the firm's product market strategy. We extend the theoretical work of Gal-Or 1986 to incorporate an endogenous imprecise cost signal in two imperfect market structures: Cournot competition and Bertrand competition with imperfectly substitutable products. In addition, we theoretically link market structure to product market strategy. To examine product market strategy, we employ a laboratory markets design that allows for strategic reaction by a rival firm in each of these markets, because the competitive position of a firm is determined by its capacity to produce at low cost, or to differentiate its product from other products (Porter 1985). Consistent with our theoretical work, we argue that firms that compete on the basis of cost leadership (which we demonstrate may be characterized as Cournot competition), benefit through increased profits from increased product cost accuracy, whereas firms that compete on the basis of product differentiation (which we demonstrate may be characterized as Benrand competition) do not benefit from such increased product cost accuracy. Our results are consistent with this contention. That is, profit is higher in the experimental cost leadership markets (operationalized as Cournot markets) when subjects know their true cost, while profit is higher in the experimental product differentiation markets (operationalized as Bertrand markets) when subjects receive uninformative cost reports and make their decisions based on expected costs. These results suggest that the value of more accurate cost reports may be dependent upon the firm's competitive market structure strategy and product market strategy.     

ENVIRONMENTAL POLICIES OF MAJOR COMPANIES: AUSTRALIAN EVIDENCE

In the world-wide literature on business and the environment, the development of a Corporate Environmental Policy (CEP) is seen as an important step in becoming environmentally aware. Australian companies have been found to be developing CEPs, and this study investigates some of the major influences on them to do so. Environmental law appears to be the most persuasive mechanism in the greening of companies. CEPs also appear to be increasingly structured and many appear to contain a statement of objectives which supports the first element of the general framework developed by Grayet al. (1987) for social (environmental) reporting.     

RESIDETIAL ELECTRIC APPLIANCES: DETERMINANTS OF OWNERSHIP

The Appliance Stock Index, a composite index based on average wattages, was devised to represent the total number of appliances owned by a household. Eight indices for different categories of appliances were also developed. The effects of selected household characteristics on the ownership of appliances in terms of the developed indices were examined. Recommendations for future research were stated.     

Evaluating the Impact on Pharmacy Practices of a Law Requiring the Posting of Drug Prices

Posting price lists of most frequently purchased retail drugs under Section 4333 of the California Pharmaceutical Law offers consumers the opportunity to make more effective price comparisons. The same information also permits examination of the pricing structure of an entire local market, and it was just such an examination which was undertaken in the present study for 100 items on sale at 24 pharmacies in the northern region of the San Francisco Bay area. Wide price differentials were found to exist. Pharmacies charging higher prices were found to do so across their entire product line: the higher prices were not related to better service but primarily to monopolistic practices. It was also concluded that if posting has so far failed to bring about lower prices, it may be due to token compliance. The study examined computer simulation techniques for measuring the effectiveness of small, unsophisticated pharmaceutical price surveys, and the accuracy of such surveys was shown to be extremely high.