R&D-induced industry polarization and shake-outs

We consider the standard two-stage game of R&D and Cournot competition with ex ante identical firms but depart from the literature in assuming that R&D is characterized by mildly, instead of strongly, decreasing returns to scale. We establish that only extreme R&D levels are possible at equilibrium, and that for a broad range of parameters, equilibria are asymmetric in R&D levels, possibly leading one firm to endogenously exit. This provides a simple link between returns to scale in R&D and industry polarization, including shake-outs. A novelty is that exit may be triggered by positive opportunities in a strategic setting. Given the original nature of our R&D equilibrium, a complete welfare analysis is conducted, including a possible role for R&D subsidies.     

Assessing value-in-use: A conceptual framework and exploratory study

Developing approaches for understanding customer perceived value is a priority for managers and scholars alike. A conceptual framework for assessment of value-in-use is proposed and explored within the context of a maintenance service provider. In contrast to value models in previous empirical research, the framework includes assessment not just of provider attributes but also of the customer's usage processes, as well as customer evaluations of the value-in-use they obtain. Interviews with members of a cross-disciplinary buying group provide support for the framework, including the observations that individuals can assess the quality of their usage processes and that they can articulate value-in-use at both organisational and individual levels; the further concept of network quality also emerges from the data. Assessment of usage process quality as well as service quality evolves as the customer's goals evolve. Practitioners may wish to elicit usage process quality and value-in-use as well as service quality. Research directions include scale development for both usage process quality and value-in-use.     

Economic policies and demand for money: evidence from Canada

This study identifies Canadian fiscal and monetary policy regime changes that could influence the services of money. It is argued that if these policy regime changes were not incorporated in the estimation of demand for real balances, the resulting estimate would be biased and unstable. Using Canadian monthly data for the January 1975 to June 2001 period, the paper estimates a standard demand-for-money (M1) function with and without these policy regime changes. It was found the demand for money in Canada is stable over the short- and long-run periods when these policy regime changes are incorporated and the estimated coefficients have correct signs.     

Valuation and management of money-back guarantee options

In this article, we model money-back guarantees (MBGs) as put options. This use of option theory provides retailers with a framework to optimize the price and the return option independently and under various market conditions. This separation of product price and option value enables retailers to offer an unbundled MBG policy, that is, to allow the customer to choose whether to purchase an MBG option with the product or to buy the product without the MBG but at a lower price. The option value of having an MBG is negatively correlated with the likelihood of product fit and with the opportunity to test the product before purchase, and positively correlated with price and contract duration. Simulation of our model reveals that when customers are highly heterogeneous in their product valuation and probability of need-fit, and if return costs are low, an unbundled MBG policy is optimal. When customers have high likelihood of fit or return costs are excessive, no MBG is the best policy. When customers have small variance in product valuation, but vary greatly in likelihood of product fit, the retailer may prefer to offer a bundled MBG contract, extracting consumer surplus by charging a price close to the valuation level.     

A supply chain generalized network oligopoly model for pharmaceuticals under brand differentiation and perishability

In this paper, we construct a generalized network oligopoly model with arc multipliers for supply chains of pharmaceutical products using variational inequality theory. The model captures the Cournot competition among the manufacturers who seek to determine their profit-maximizing product flows, which can be perishable, with the consumers differentiating among the products of the firms, whether branded or generic, and the firms taking into consideration the discarding costs. The numerical examples demonstrate that a brand pharmaceutical product may lose its dominant market share as a consequence of patent rights expiration and because of generic competition.     

Asset Pricing Implications of Firms' Financing Constraints

We use a production-based asset pricing model to investigatewhether financing constraints are quantitatively important forthe cross-section of returns. Specifically, we use GMM to explorethe stochastic Euler equation imposed on returns by optimalinvestment. Our methods can identify the impact of financialfrictions on the stochastic discount factor with cyclical variationsin cost of external funds. We find that financing frictionsprovide a common factor that improves the pricing of cross-sectionalreturns. Moreover, the shadow cost of external funds exhibitsstrong procyclical variation, so that financial frictions aremore important in relatively good economic conditions. (JELE22, E44, G12)     

Scale functions in equilibrium selection games

We present here an evolutionary game model, and address the issue of equilibrium selection working with the scale function of a diffusion process describing the dynamics of population processes with mutation modeled as white noise. This model is the same as the one in Foster and Young (1990) but with a different interpretation at the boundaries and with different mutation modelings. First, we justifiably assume that the boundaries of the solution of the stochastic differential equation are absorbing so that the first boundary of the interval [0,1] hit will determine the equilibrium selected. Then, working with the scale function, we obtain for 2×2 symmetric games and different mutation parameters, some new and interesting equilibrium selection results. The aim of this article is to describe another method of approach in evolutionary games with mutation which we believe will prove to be very useful in studying more general normal form games and different mutation modelings.