An option approach to the new product development process: a case study at Philips Electronics

The paper considers the product development process as a series of (real) options with reducing uncertainty over time. Criteria are developed to decide on speeding up or delaying the development process. The paper demonstrates how, in the R&D phase, any particular project may be assigned within a 2 × 2 matrix of uncertainty versus R&D option value. A similar matrix can be established for the product launch phase. The matrices support portfolio management throughout the different phases of development and enable management to decide on an appropriate point at which to abandon individual projects. The approach originates from applying real options insights into the product development process at Philips Electronics. The paper is illustrated with some actual R&D projects.     

Confidence building on Euro convergence: Evidence from currency options

We study the evolution of investor confidence in 1992-1998 over the chance of individual currencies to converge to the Euro, using data on currency option prices. Convergence risk, which may reflect uncertainty over policy commitment as well as exogenous fundamentals, induces a level of implied volatility in excess of actual volatility. This volatility wedge should gradually decrease as confidence grows over time as convergence policy is maintained, and the risk of a reversal is progressively resolved. Empirically, we indeed find a positive volatility wedge which declines over time only for currencies involved in the Euro convergence process. The wedge and other convergence risk measures are correlated with both exogenous fundamentals and proxies for policy commitment uncertainty. We also find that the wedge responds to policy shocks in an asymmetric fashion, suggesting that policy risk is resolved at different rates after negative and positive shocks. Finally, we estimate a regime-switching model of convergence uncertainty, using data on interest rates, currency rates, and currency option prices. The results confirm the time-varying and asymmetric nature of convergence risk, and indicate that investors demand a risk premium for convergence risk.     

Prioritizing stakeholder concerns in environmental risk management

The management of environmental programmes often involves several stakeholders with diverse, and often conflicting, concerns. This paper proposes a methodology for the assessment of stakeholder preferences regarding a number of objectives of environmental restoration activities, such as the minimization of costs and of the impact on human health and safety. This methodology is based on an analytic/deliberative process that starts with pairwise comparisons of these objectives using questionnaires that the stakeholders complete. This input is used to produce a first set of relative weights using the Analytic Hierarchy Process (the analytic part). This set, as well as possible inconsistencies of the stakeholder assessments, is discussed with the stakeholders to correct inconsistencies and revise the weights (the deliberative part). The stakeholders always have the final word regarding the relative weights. Insights gained from a case study are also presented. The feedback from the stakeholders participating in this exercise was positive.     

Magic mirror in my hand … How trade mirror statistics can help us detect illegal financial flows

Misreporting tricks of different sorts applied to the transfer of goods between different countries are typically exploited by criminals worldwide for money laundering ends. The main international anti‐money laundering organisations started paying attention to this phenomenon, dubbed “trade‐based money laundering” (TBML), a long time ago, but the failure to develop appropriate analytical tools has reportedly dogged preventive actions. Nonetheless, literature has widely advocated the possibility that the analysis of inconsistencies in mirrored bilateral trade data could provide some help. By building on previous contributions in the field, this work sets up a model factoring in the main structural determinants of discrepancies between mirrored data concerning Italy's 2010 to 2013 external trade at a highly detailed (6‐digit) level of goods classification for each partner country. Point estimates of freight costs are used to net each observation of the corresponding cif/fob discrepancy. The regression estimates are then deployed in order to compute TBML risk indicators at a country/4‐digit product level. Based on the indicators, rankings of countries and product lines can be compiled, which may be used for a risk‐driven search of potential illegal commercial transactions.     

The Outlook for European Grocery Retailing: Competition and Format Development

This article analyses retail trends in the main European countries, and particularly format evolution and competition amongst retailing firms. On the basis of the existence of European retailing landscapes that are sometimes similar without ever being identical, the article analyses the impact of the main factors of change on different national markets. Whilst retail internationalisation and new entrants, commercial policy, legislative environments, technological innovations, consumers and buying behaviour will have a convergence effect on different countries' retail structures, substantial differences will still exist. European retailing in the coming years will probably be characterized by increasingly less marked differences between countries than one finds today, but market segmentation, variety and differentiation of retailing formats and brand names will be stronger within each country.     

The determinants of firm start-up and entry in Italian producer services

In this paper the determinants of new firm formation in the producer services are studied by using National Security data on firms with at least one employee. Two ratios are computed and analysed for the 95 Italian provinces: an index of fertility represented by the share of new enterprises on employees, and a birth rate represented for each province by the ratio between new enterprises and resident population. On examination of the determinants of this process, we found that the average wage rates and the ratio of utilized credit to the total line of credit negatively affect both indexes, and that both indexes are affected positively by sector growth and by a measure of small firm presence. The index of fertility is also explained by a dummy variable which identifies for each province those policies which are aimed at fostering the process of new firm formation. The birth rate is instead affected by a dummy variable which is equal to one for the provinces in which the chief towns of each region are located and zero otherwise, and by the potential demand for new producer services arising from the industrial sector.     

The interplay of human and social capital in shaping entrepreneurial performance: the case of Vietnam

This study investigates the effects of human capital, social capital and their interaction on the performance of 1,398 Vietnamese new-born firms. Operating profit is used as the measure of success. Human capital is captured by individual-level professional education, start-up experience, and learning. Whereas the first two dimensions of human capital are measured with traditional indicators, we define learning as the ability to accumulate knowledge to conduct innovation activities (new product introduction, product innovation and process innovation). Social capital is measured as benefits obtained from personal strong-tie and weak-tie networks. Key findings are threefold: (i) human capital strongly predicts firm success, with learning exhibiting a statistically significant positive association with operating profit, (ii) benefits from weak ties outweigh those from strong ties, (iii) interaction of human capital and social capital displays a statistically significant positive effect on new-firm performance.     

Price-Increasing Competition on Two-Sided Markets with Homogeneous Platforms

We make a case for price-increasing competition on “competitive bottleneck” two-sided markets. We argue that demand interrelation might be sufficient to cause either no observable price effect of competition or price-increasing competition. Under price equality, total demand on both market sides in the duopoly market exceeds total demand in the monopoly market. Furthermore, even though there is no observable price effect, there is still a competitive effect that becomes manifest in total duopoly equilibrium profits being strictly smaller than monopoly profits. The relationship of total welfare is ambiguous in subsidization cases, while without subsidization, welfare is strictly greater in duopoly.