The rise of economics in competition policy: A Canadian perspective

Competition policy in Canada and elsewhere has changed remarkably over the last 50 years—in large measure due to advances in economics. In this article, we trace the impact of developments in industrial organization on the three central areas of competition policy: cartels, single firm conduct and mergers. We focus on Canadian competition policy but draw comparisons with developments in the United States and Europe.     

Incorporating a tracking signal into a state space model

It is a common practice to complement a forecasting method such as simple exponential smoothing with a monitoring scheme to detect those situations where forecasts have failed to adapt to structural change. It will be suggested in this paper that the equations for simple exponential smoothing can be augmented by a common monitoring statistic to provide a method that automatically adapts to structural change without human intervention. The resulting method, which turns out to be a restricted form of damped trend corrected exponential smoothing, is compared with related methods on the annual data from the M3 competition. It is shown to be better than simple exponential smoothing and more consistent than traditional damped trend exponential smoothing.     

Estimating cost of capital in firm valuations with arithmetic or geometric mean – or better use the Cooper estimator?

We test the extent and determinants of bias effects of the arithmetic as well as the geometric mean estimator and the estimator of Cooper [1996. Arithmetic versus geometric mean estimators: Setting discount rates for capital budgeting. European Financial Management 2 (July): 157–67] regarding discount rate estimation for firm valuation by way of a bootstrap approach for 13 different countries. The Cooper estimator is superior to both the geometric and the (conventional) arithmetic mean estimator. However, a ‘truncated’ version of the arithmetic mean estimator leads generally to better estimation outcomes than the Cooper estimator. This means that, in order to reduce problems of upward-biased firm value estimates, expected cash flows beyond a certain time horizon are completely neglected in terminal value estimation. Such an approach seems particularly reasonable for the valuation of young growth companies as well as for companies from quickly developing countries such as Brazil, China, or Thailand, because the bias in terminal value estimation is increasing in the growth rate of future expected cash flows.     

Expenditure elasticities of the demand for leisure services

Although some research has already focused on the analysis of expenditure elasticities of leisure demand, some shortcomings with regard to the content and the underlying theoretical model as well as the applied methods exist. This article aims at avoiding these problems to provide consistent derivatives of leisure service expenditure elasticities. Therefore, a regular demand system is derived from microeconomic duality theory. To implement leisure specific demand factors (i.e. demand- and supply-based sports and recreational opportunities as well as sports and recreational preferences) while still being consistent with neoclassical demand theory, the basic model is extended by applying the demographic translation framework. Data of the continuous household budget survey (n?=?7724) from Germany is used for the estimation of the derived demand system. It is shown how sensitive the results are depending on the applied (censored) regression model: 16 out of 18 analysed services are indicated as luxury goods based on the findings of the Tobit model type I but as necessities based on the findings of the Tobit model type II. Possible implications are presented and discussed.     

On the determinants of household debt maturity choice

This article jointly analyses a behavioural and a cultural concept to explain household debt portfolio choice. The behavioural approach explores the role of time preferences on household debt maturity in a theoretical model and a numerical analysis. We derive a positive relationship between the long-term discount factor δ and the optimal maturity of household loans. The cultural approach examines whether national culture is a reasonable predictor for household debt maturity. We show that culture is an important factor for households’ borrowing decisions and has even more predictive power than time preferences. Countries with higher scores on the Hofstede dimension of long-term orientation tend to have shorter household debt maturity. Time preferences incur a primarily mediating role, because the effect of national culture on the borrowing decision is reduced, as the long-term discount factor δ increases.     

Supply function equilibria: Step functions and continuous representations

In most electricity markets generators must submit step-function offers to a uniform price auction. These markets are often modelled as simpler pure-strategy Supply Function Equilibria (SFE) with continuous supply functions. Critics argue that the discreteness and discontinuity of the required steps drastically change Nash equilibria, invalidating predictions of the SFE model. We prove that there are sufficient conditions, offered quantities can be continuously varied, offered prices are selected from a finite set, and the density of the additive demand shock is not too steep, where the resulting stepped SFE converges to the continuous SFE as the number of steps increases, reconciling the apparently very disparate approaches to modelling electricity markets.     

Marketing’s roles in innovation in business-to-business firms: Status, issues, and research agenda

A project funded by the Institute for the Study of Business Markets to develop an understanding of the current state of business-to-business marketing and a research agenda for the field identified a lack of understanding of how the marketing function can or should best contribute to firms’ innovation efforts as the top priority. A workshop of senior academics and research-oriented practitioners explored this topic further, identifying four specific themes: (1) improving customer needs understanding and customer involvement in developing new products, (2) innovating beyond the lab, (3) disseminating and implementing research findings in firms, and (4) marketing’s overall role in innovation. This article defines these themes, sketches the current status of knowledge about each theme, frames practitioners’ issues with them, and proposes research agendas for each theme to move the field forward. The goal is to encourage rigorously executed academic research that can also help firms innovate more successfully.     

Stackelberg price leadership in spatial competition

This paper examines Stackelberg price leadership in a spatially competitive model with infinitely many stores on an infinite line. A Stackelberg price leader charges significantly more than the pure Nash equilibrium price, induces its neighbors to charge somewhat more than the pure Nash equilibrium price, and increases its profits. Under Nash equilibrium, collusion of two stores makes a difference to prices only if the colluding stores are nearest neighbors. Under Stackelberg price leadership, collusion makes a difference to prices even if the stores are not nearest neighbors.