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Journal of Economics &amp Management Strategy

Impact factor: 0.878 5-Year impact factor: 1.709 Print ISSN: 1058-6407 Online ISSN: 1430-9134 Publisher: Wiley Blackwell (Blackwell Publishing)

Subjects: Economics, Management

Most recent papers:

  • Customer‐oriented employees: Blessing or curse for firms?
    Ester Manna.
    Journal of Economics &amp Management Strategy. October 16, 2017
    I investigate whether the presence of customer‐oriented employees benefits firms in a competitive environment. Employees are defined as customer‐oriented if they are interested not only in their wage but also in the well‐being of their customers. I find that firms may obtain higher profits by hiring self‐interested rather than customer‐oriented employees. This is because the employees' customer orientation has opposing effects on the profits obtained by the firms. On the one hand, customer‐oriented employees provide a given level of quality for a lower wage. On the other hand, the employees' customer orientation increases competition reducing prices. If the second effect dominates, firms find themselves trapped in a prisoners' dilemma as the strategy of hiring self‐interested employees is strictly dominated by that of hiring customer‐oriented employees. Hence, the very presence of customer‐oriented employees may hurt firms. If motivated employees are merely interested in the quality of the good provided, the effect on the price outlined before disappears.
    October 16, 2017   doi: 10.1111/jems.12232   open full text
  • The burden of glory: Competing for nonmonetary incentives in rank‐order tournaments.
    Raja Kali, David Pastoriza, Jean‐François Plante.
    Journal of Economics &amp Management Strategy. October 13, 2017
    In an environment in which elite, highly paid professionals compete for nonmonetary rewards, we find evidence of underperformance. Our analysis suggests that choking under pressure from high‐stakes nonmonetary rewards is behind the underperformance. This implies that high stakes nonmonetary rewards can create meaningful pressure on individuals and lead to worse performance, a distinct issue that has yet to be adequately examined. These findings come from an examination of the behavior of top U.S. golfers competing to earn a place on the U.S. Ryder Cup team via their performance in PGA Tour tournaments with differing allocations of Ryder Cup qualifying points.
    October 13, 2017   doi: 10.1111/jems.12233   open full text
  • Learning quality through prices and word‐of‐mouth communication.
    Carla Guadalupi.
    Journal of Economics &amp Management Strategy. October 10, 2017
    This paper studies the effect of word‐of‐mouth communication on the optimal pricing strategy for new experience goods. I consider a dynamic monopoly model with asymmetric information about product quality, in which consumers learn in equilibrium from both prices and other consumers. The main result is that word‐of‐mouth communication is essential for the existence of separating equilibria, wherein the high‐quality monopolist signals high quality through a low introductory price (lower than the monopoly price), and the low‐quality one charges the monopoly price. The intuition is simple: low prices are costly, and will only be used by firms confident enough that increased experimentation (and therefore communication among consumers) will yield good news about quality and increased future profits. Additional results are the following: for the high‐quality seller, the expected price (quantity) is increasing (decreasing) over time; whereas for the low‐quality one, the opposite is true. Moreover, signaling becomes more difficult when consumers pay less attention to their peers' reports and more attention to past prices. Finally, word‐of‐mouth communication improves consumer welfare.
    October 10, 2017   doi: 10.1111/jems.12230   open full text
  • Price and quality competition with quality positions.
    Shogo Kurokawa, Nobuo Matsubayashi.
    Journal of Economics &amp Management Strategy. September 28, 2017
    In this study, we investigate price and quality decisions in a duopoly in the presence of firms’ quality positions , which are determined by the quality levels of their existing core products. Into a standard model of vertical differentiation, we incorporate a “repositioning cost” that is proportional to the quality differences between firms’ current and new products. By varying the levels of quality positions, we analyze the impact of this cost on the equilibrium outcomes. Our results show that the presence of repositioning costs restricts firms’ abilities to improve profitability and differentiate themselves vertically. As a result, a high‐positioned firm does not necessarily have a competitive advantage over a low‐positioned firm, even if the former offers a superior new product in equilibrium. In addition, if a low‐positioned firm is significantly cost‐efficient compared with its rival with regard to repositioning, then that firm can earn higher profits than those of a high‐positioned firm by strategically offering its low‐end product. These results contrast sharply with those based on the standard vertical differentiation model.
    September 28, 2017   doi: 10.1111/jems.12229   open full text
  • Contests with endogenous deadlines.
    Christian Seel.
    Journal of Economics &amp Management Strategy. September 27, 2017
    This paper analyzes the problem of a contest designer who chooses a starting time and a deadline of the contest to maximize discounted total effort by the contestants. Each contestant secretly decides how much effort to exert between the starting time and the deadline. At the deadline, the contestant who exerted most effort wins a prize, which consists of the endowment of the designer and collected interest. The contest has a unique Nash equilibrium. In the main model, the designer should announce the contest immediately with a short deadline to promote intense competition. I analyze how the optimal starting time and deadline change for a variable contest prize, different types of asymmetries, a Tullock lottery contest success function, and different goal functions of the designer.
    September 27, 2017   doi: 10.1111/jems.12228   open full text
  • Are patent fees effective at weeding out low‐quality patents?
    Gaétan Rassenfosse, Adam B. Jaffe.
    Journal of Economics &amp Management Strategy. August 31, 2017
    The paper investigates whether patent fees are an effective mechanism to deter the filing of low‐quality patent applications. The study analyzes the effect on patent quality of the Patent Law Amendment Act of 1982, which resulted in a substantial increase in patenting fees at the U.S. Patent and Trademark Office. Results from a series of difference‐in‐differences regressions suggest that the increase in fees led to a weeding out of low‐quality patents. About 10% of patents in the lowest quality decile were filtered out, with the effect concentrated in the patents of firms whose overall patent portfolio was medium to large (more than 20 patents). The study has strong policy implications in the current context of concerns about declines in patent quality.
    August 31, 2017   doi: 10.1111/jems.12219   open full text
  • Do retail mergers affect competition? Evidence from grocery retailing.
    Daniel S. Hosken, Luke M. Olson, Loren K. Smith.
    Journal of Economics &amp Management Strategy. August 30, 2017
    This study estimates the price effects of horizontal mergers in the U.S. grocery retailing industry. We examine fourteen regions affected by mergers, including mergers in highly concentrated and relatively unconcentrated markets. We identify price effects by comparing markets affected by mergers to unaffected markets using difference‐in‐difference estimation with three different comparison groups, propensity score weights, and by using the synthetic control method. Our results are robust to the choice of control group and estimation technique. We find that mergers in highly concentrated markets are most frequently associated with price increases, and mergers in less concentrated markets are most often associated with price decreases.
    August 30, 2017   doi: 10.1111/jems.12218   open full text
  • The O‐ring theory of the firm.
    Michael T. Rauh.
    Journal of Economics &amp Management Strategy. August 29, 2017
    We develop an O‐ring production function characterized by specialization and division of labor and where shirking or negative shocks can have major adverse consequences. We show that when the principal can monitor individual output, the firm tends be large (potentially larger than first best), with a high degree of specialization and division of labor, weak incentives, and low pay as in traditional nonunion manufacturing. Moral hazard can only limit the size of the firm relative to the first best when the principal can only monitor team output, in which case the firm has the opposite characteristics.
    August 29, 2017   doi: 10.1111/jems.12216   open full text
  • Customer–employee substitution: Evidence from gasoline stations.
    Emek Basker, Lucia Foster, Shawn Klimek.
    Journal of Economics &amp Management Strategy. August 22, 2017
    We document the adoption of self‐service pumps in U.S. gasoline stations from 1977 to 1992. Using establishment‐level data from the Census of Retail Trade over this period, we show that self‐service stations employ approximately one quarter fewer attendants per pump, all else equal. The work done by these attendants has shifted to customers, biasing upward conventional measures of productivity growth.
    August 22, 2017   doi: 10.1111/jems.12215   open full text
  • The magic of the new: How job changes affect job satisfaction.
    Adrian Chadi, Clemens Hetschko.
    Journal of Economics &amp Management Strategy. July 25, 2017
    We investigate a crucial event for job satisfaction: changing one's workplace. For representative German panel data, we show that the reason why the previous employment ended is strongly linked to satisfaction with the new job. Workers initiating a change of employer experience extraordinarily high job satisfaction, though in the short term only. To investigate causality, we exploit the event of plant closure as an exogenous trigger of job switching. In this case, we find no significantly positive effect of job changes on job satisfaction. Our findings complement research on workers’ well‐being and concern labor market policies and human resource management.
    July 25, 2017   doi: 10.1111/jems.12217   open full text
  • Choosing not to compete: Can firms maintain high prices by confusing consumers?
    Paolo Crosetto, Alexia Gaudeul.
    Journal of Economics &amp Management Strategy. July 13, 2017
    Firms with very similar products often present their products in different ways. This makes it difficult for consumers to find out which product fits their needs best, or which one is the cheapest. Why is there no convergence toward common ways to present products? Is it possible for firms to maintain high prices by confusing consumers? We run a market experiment to investigate those questions. In our market, firms choose how to present their products in addition to choosing their price. We find that firms maintain different ways to present their products and that this allows them to maintain high prices. This behavior is not consistent with competitive behavior, such as when firms adopt best responses to each other, imitate the most successful firm, or learn the best strategy over time. Rather, our results are only consistent with cooperation between firms. Firms cooperate by not imitating the way other firms present their products. Cooperation is maintained by the threat of tough competition if a firm makes its product easy to compare with others. Firms are all the more likely to maintain such cooperation if their products do not actually differ much. This is because in that case, maintaining differences in the presentation of their products is the only way to maintain profits.
    July 13, 2017   doi: 10.1111/jems.12212   open full text
  • Do tournaments solve the adverse selection problem?
    Theofanis Tsoulouhas.
    Journal of Economics &amp Management Strategy. July 13, 2017
    This paper provides a solution to a puzzle in the analysis of tournaments, that of why there is no agent discrimination or differential contracting in certain business practice settings. The paper examines the problem of a principal contracting with multiple agents whose activities are subject to common shocks. The presence of common shocks invites the use of relative performance evaluation to minimize the costs of moral hazard. But, in the additional presence of adverse selection, the analysis shows that there may be no need for ex ante screening through menus of offers. This is so because the principal becomes better informed ex post about agent types, via the realization of common uncertainty, and can effectively penalize or reward the agents ex post. Thus, unlike the standard adverse selection problem without common uncertainty where the principal always benefits from ex ante screening, it is shown that ex post sorting through relative performance evaluation reduces the scope for ex ante screening through menus, and can eliminate it completely if agents are known to not be very heterogeneous. This is consistent with observed practice in industries where the primary compensation mechanism is a cardinal tournament which is uniform among employees. The analysis connotes that by using relative instead of absolute performance measures, firms with employees who are not substantially heterogeneous not only can alleviate the agency problem, but there is also no need to extract the agents' ex ante private information about their innate abilities via a screening menu.
    July 13, 2017   doi: 10.1111/jems.12214   open full text
  • Learning remotely: R&D satellites, intrafirm linkages, and knowledge sourcing.
    Joel Blit.
    Journal of Economics &amp Management Strategy. July 12, 2017
    Firms venture abroad not only to access resources and markets but also to learn. Yet there remains limited empirical evidence that headquarters can access geographically remote knowledge by establishing a presence in the remote location. Using U.S. patent data, I show that firm headquarters disproportionately source knowledge from third parties in remote locations where they have an R&D satellite. This “satellite effect” on knowledge flow is economically significant, representing up to 60% of the knowledge‐flow premium associated with collocation. Furthermore, the effect seems to be stronger for recent knowledge, as well as in areas of satellite technological specialization, suggesting that firms can target cutting‐edge knowledge in specific sectors. In addition, the results show that firms with stronger internal linkages between headquarters and satellites, and those that staff satellites with inventors that previously patented while at other local firms, experience a larger satellite effect on knowledge acquisition.
    July 12, 2017   doi: 10.1111/jems.12213   open full text
  • The economic value of patent portfolios.
    Alfonso Gambardella, Dietmar Harhoff, Bart Verspagen.
    Journal of Economics &amp Management Strategy. May 10, 2017
    Patent holders may choose to protect innovations with single patents or to develop portfolios of multiple, related patents. We propose a decision‐making model in which patent holders allocate resources to either expanding the number of related patents or investing in higher value of patents in the portfolio. We estimate the derived value equation using portfolio value data from an inventor survey at the level of individual inventions rather than the firm as a whole. We find that investments in individual inventions exhibit diminishing returns, and that a good part of the value of a portfolio depends on adding new patented inventions. Also, while diminishing returns to individual inventions are stable across subsamples, the returns to portfolio size vary between complex and discrete industries, and between inventions that are science‐based or driven by customer information. When firms seek to strengthen appropriability, the returns to an increase of portfolio size are not different from the sample average. Thus, a higher number of inventions in a portfolio may reflect both stronger appropriability via patents and genuine creation of value.
    May 10, 2017   doi: 10.1111/jems.12210   open full text
  • Should everybody be in services? The effect of servitization on manufacturing firm performance.
    Matthieu Crozet, Emmanuel Milet.
    Journal of Economics &amp Management Strategy. May 02, 2017
    The servitization of the manufacturing sector refers to the evolution of manufacturers' capabilities to offer services as complements to or substitutes for the goods that they produce. A vast literature has described these strategies and has shown that this phenomenon is widespread and growing in most developed economies. However, very little systematic evidence of the extent or consequences of servitization based on a comprehensive data set of firms exists. In this paper, we provide such evidence using exhaustive data for French manufacturing firms between 1997 and 2007. We find that the vast majority of French manufacturers sell services in addition to producing goods. The shift toward services is growing steadily but at a slow pace. We also estimate the impact of servitization on firm performance. Controlling for various sources of endogeneity bias, our most conservative results show that firms that start selling services increase their profitability by 0.4%, their employment by 2.1%, and their total sales by 0.6%. For small businesses, we also find a positive impact on the production of goods. We also uncover strong heterogeneity across manufacturing industries.
    May 02, 2017   doi: 10.1111/jems.12211   open full text
  • Constructing a Chinese patent database of listed firms in China: Descriptions, lessons, and insights.
    Zi‐Lin He, Tony W. Tong, Yuchen Zhang, Wenlong He.
    Journal of Economics &amp Management Strategy. May 02, 2017
    Although China is now the largest patent filing country in the world, there is little firm‐level research using Chinese patents due to difficulties in integrating Chinese patent data with firm data. To partially address this gap, we construct a Chinese Patent Database linking State Intellectual Property Office (SIPO) patents to all listed firms and their subsidiaries in China, and we are making the database publicly available to the research community. We first develop a computer program to match the assignee names of SIPO patents to the names of listed firms and subsidiaries based on a similarity score, taking into account unique challenges associated with Chinese firm‐names and Chinese characters. High‐scoring likely matches are then checked manually to determine whether they are indeed true matches. The resulting database includes 191,325 SIPO patents matched to listed firms in China from 1990 to 2010. Using this database, we find a large amount of patenting heterogeneity across firms of different geographic locations, technological foci, and ownership types. We also leverage strengths of the data to conduct a detailed analysis of the patent examination process at the SIPO. Although there is not much difference in the examination process between listed firms and their nonlisted counterparts in China, substantial differences exist between Chinese firms and foreign firms. We find that foreign firms experience substantial delay in publishing patent applications and requesting for substantive examination compared to Chinese firms. Such delay accounts for 40–60% of the longer duration from application date to decision date for foreign firms. However, after accounting for such delay, foreign firms still face much longer pendency in reaching an examination outcome (grant, withdrawal, or refusal) than Chinese firms. We hope that the public database and such analysis will encourage new streams of research on Chinese patents to improve our knowledge of China's fast‐changing innovation landscape.
    May 02, 2017   doi: 10.1111/jems.12186   open full text
  • Manufacturer collusion: Strategic implications of the channel structure.
    Markus Reisinger, Tim Paul Thomes.
    Journal of Economics &amp Management Strategy. April 10, 2017
    We investigate how the structure of the distribution channel affects tacit collusion between manufacturers. When selling through a common retailer, we find—in contrast to the conventional understanding of tacit collusion that firms act to maximize industry profits—that colluding manufacturers strategically induce double marginalization so that retail prices are above the monopoly level. This lowers industry profits but increases the profit share that manufacturers appropriate from the retailer. Comparing common distribution with independent (exclusive) distribution, we show that the latter facilitates collusion. Despite this result, common retailing leads to lower welfare because a common retailer monopolizes the downstream market. For the case of independent retailing, we also demonstrate that contract offers that are observable to the rival retailer are not necessarily beneficial for collusive purposes.
    April 10, 2017   doi: 10.1111/jems.12209   open full text
  • Signaling by an informed service provider.
    Frances Xu Lee, Yuk‐fai Fong.
    Journal of Economics &amp Management Strategy. April 06, 2017
    We study a service provider, who, at the time of offering a contract, is better informed than the potential client. A service provider that is hired to increase the client's chance of a gain, an “enhancer,” may be better informed of whether the client has a big or small opportunity. A service provider that is hired to reduce the client's chance of a loss, a “problem solver,” may be better informed of whether the client has a big or small problem. We show that an enhancer predominantly offers a contingent contract, while a problem solver predominantly offers a flat fee due to their signaling incentives. This explains the differences in real‐world contracts and also provides a novel explanation for the existence of low‐powered incentive contracts. We evaluate the policy intervention that limits the contingent part of the service providers' contracts.
    April 06, 2017   doi: 10.1111/jems.12208   open full text
  • The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience.
    Maximilian Ehrlich, Doina Radulescu.
    Journal of Economics &amp Management Strategy. March 16, 2017
    This paper explores the effects of a bonus tax adopted in the UK in December 2009 on the compensation structure of executives and on risk‐taking behavior in the financial sector. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly bank risk taking by means of a special tax on cash‐based bonuses. Using a comprehensive dataset on executive compensation, we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 40%, accompanied, however, by a simultaneous increases in other forms of pay leaving total compensation as well as risk levels unaffected.
    March 16, 2017   doi: 10.1111/jems.12203   open full text
  • Content aggregation by platforms: The case of the news media.
    Lesley Chiou, Catherine Tucker.
    Journal of Economics &amp Management Strategy. March 16, 2017
    The digitization of content has led to the emergence of platforms that draw information from multiple sources. This paper investigates whether aggregation of content by a single platform encourages users to “skim” content or to investigate it in depth. We study a contract dispute that led a major aggregator to remove information from a major content provider. After the removal, users were less likely to investigate additional, related content in depth, particularly sources that were horizontally or vertically differentiated.
    March 16, 2017   doi: 10.1111/jems.12207   open full text
  • From fixed to state‐dependent duration in public‐private partnerships.
    Daniel Danau, Annalisa Vinella.
    Journal of Economics &amp Management Strategy. March 09, 2017
    A government delegates a build‐operate‐transfer project to a private firm. In the contracting stage, the operating cost is unknown. The firm can increase the likelihood of facing a low cost, rather than a high cost, by exerting costly effort when building the infrastructure. Once the infrastructure is in place, the firm learns the true cost and begins to operate. Under limited commitment, either partner may renege on the contract at any moment thereafter. The novelty with respect to incentive theory is that the contractual length is stipulated in the contract in such a way that it depends on the cost realization. Our main result is that, if the break‐up of the partnership is sufficiently costly to the government and/or adverse selection and moral hazard are sufficiently severe, then the efficient contract is not robust to renegotiation unless it has a longer duration when the realized cost is low. This result is at odds with the literature on flexible‐term contracts, which recommends a longer duration when operating conditions are unfavorable, yet, with regard to a different setting, where the demand is uncertain and the cash‐flow is exogenous.
    March 09, 2017   doi: 10.1111/jems.12204   open full text
  • Will a matchmaker invite her potential rival in?
    Rupayan Pal, Vinay Ramani.
    Journal of Economics &amp Management Strategy. March 08, 2017
    This paper analyzes optimal strategies of an incumbent intermediary, who matches agents on the two sides of a market, in the presence of entry threat under alternative scenarios. It shows that, when entry is free, strategic entry accommodation is the optimal choice of the incumbent—not entry deterrence, unless the variation in agents' types is small. Entry accommodation remains optimal for the incumbent for a wide range of parametric configurations even when there is a fixed cost of entry. These results are in sharp contrast to the predictions of existing models of entry.
    March 08, 2017   doi: 10.1111/jems.12206   open full text
  • Rivalry information acquisition and disclosure.
    Xinyu Li, Ronald Peeters.
    Journal of Economics &amp Management Strategy. March 07, 2017
    In the recent past, there have been numerous scandals around poor product qualities in various industries. Although it can be easily rationalized why bad practices have not been reported by the inflictors themselves, it is more difficult to understand why the non‐inflicting competitors did not report their rivals' acts. In this paper, we study these competitors' incentives to acquire and to disclose information on the quality of their rivals' products and question when we can leave the information disclosure process to the competitive pressure of markets and when there is a need for governmental intervention. We find that low quality levels can be disclosed in markets that exhibit negative spill‐over effects, but should not be expected to be disclosed in markets that exhibit a positive spill‐over effect. A regulatory policy on quality testing and disclosure may be more effective in the latter type of market.
    March 07, 2017   doi: 10.1111/jems.12198   open full text
  • Targeted advertising, platform competition, and privacy.
    Henk Kox, Bas Straathof, Gijsbert Zwart.
    Journal of Economics &amp Management Strategy. March 07, 2017
    Targeted advertising can benefit consumers through lower prices for access to web sites. Yet, if consumers dislike that web sites collect their personal information, their welfare may go down. We study competition for consumers between web sites that can show targeted advertisements. We find that more targeting increases competition and reduces the web sites' profits, but yet in equilibrium web sites choose maximum targeting as they cannot credibly commit to low targeting. A privacy protection policy can be beneficial for both consumers and web sites. If consumers are heterogeneous in their concerns for privacy, a policy that allows choice between two levels of privacy will be better. Optimal privacy protection takes into account that the more intense competition on the high‐targeting market segment also benefits consumers on the less competitive segment. Consumer surplus is maximized by allowing them a choice between a high‐targeting regime and a low‐targeting regime which affords more privacy.
    March 07, 2017   doi: 10.1111/jems.12200   open full text
  • Motivate and select: Relational contracts with persistent types.
    Radoslawa Nikolowa.
    Journal of Economics &amp Management Strategy. March 07, 2017
    We develop a model of relational contracts with moral hazard and asymmetric persistent information about an employee's type. We find that the form of the optimal contract depends on the job characteristics and the distribution of employees' talent. Bonus contracts are more likely to be adopted in complex jobs and when high talent is not too common or too rare. Firms with “normal” jobs are more likely to adopt termination contracts. In labor market equilibrium, different contracts may be adopted by ex ante identical firms. Hence, we offer an explanation for the coexistence of different employment systems within the same industry.
    March 07, 2017   doi: 10.1111/jems.12201   open full text
  • Bundling and joint marketing by rival firms.
    Thomas D. Jeitschko, Yeonjei Jung, Jaesoo Kim.
    Journal of Economics &amp Management Strategy. March 07, 2017
    We study joint marketing by firms who price discriminate between consumers who patronize only one firm (single purchasers) and those who purchase from both (bundle purchasers). Firms either set the price of the bundle and then compete along side the bundle; or they determine a rebate that is applied to joint purchasers and then set prices. Even though the pricing structure in the joint marketing scheme is determined noncooperatively, the commitment to the joint marketing agreement allows firms to leverage their stand‐alone prices—leading to higher profits and lower consumer surplus in either case, compared to both uniform pricing and independent price discrimination without a joint marketing agreement. Nevertheless the two schemes differ dramatically, in that rebates increase joint purchasing, whereas bundle pricing diminishes bundle purchases.
    March 07, 2017   doi: 10.1111/jems.12199   open full text
  • Scientific research, firm heterogeneity, and foreign R&D locations of multinational firms.
    René Belderbos, Bart Leten, Shinya Suzuki.
    Journal of Economics &amp Management Strategy. March 07, 2017
    We examine the influence of host countries’ scientific research strengths on global R&D location choices by multinational firms. In an analysis of 277 new R&D activities identified for 175 firms in 40 host countries and 30 technology fields, we find that the strength of relevant university research positively affects the likelihood that host countries attract foreign R&D. When allowing for firm heterogeneity, university scientific research appears only a significant factor for firms with a strong science orientation in their R&D activities. Host countries’ corporate scientific research has no systematic influence on R&D location choices. Empirical results are replicated in an analysis at the regional level covering regions in Europe, the United States, and Japan.
    March 07, 2017   doi: 10.1111/jems.12205   open full text
  • The effects of major U.S. domestic airline code sharing and profit sharing rule.
    Caixia Shen.
    Journal of Economics &amp Management Strategy. March 07, 2017
    This paper presents a structural model of code sharing among major U.S. domestic airlines and estimates a profit‐sharing rule. The profit‐sharing rule between partner firms in code sharing is estimated at 0.92, which suggests that the operating carrier acquires around 92% of profits from a round‐trip, and the marketing carrier retains 8% as a commission fee. Meanwhile, the economies of code sharing reduces marginal cost, and firms are able to price at higher markups. This implies that demand increases and consumers have larger surplus if code sharing creates new products.
    March 07, 2017   doi: 10.1111/jems.12202   open full text
  • Prevention incentives in long‐term insurance contracts.
    Renaud Bourlès.
    Journal of Economics &amp Management Strategy. February 07, 2017
    Long‐term insurance contracts are widespread, particularly in public health and the labor market. Such contracts typically involve monthly or annual premia which are related to the insured's risk profile. A given profile may change, based on observed outcomes which depend on the insured's prevention efforts. The aim of this paper is to analyze the latter relationship. In a two‐period optimal insurance contract in which the insured's risk profile is partly governed by her effort on prevention, we find that both the insured's risk aversion and prudence play a crucial role. If absolute prudence is greater than twice absolute risk aversion, moral hazard justifies setting a higher premium in the first period but also greater premium discrimination in the second period. This result provides insights on the trade‐offs between long‐term insurance and the incentives arising from risk classification, as well as between inter‐ and intragenerational insurance.
    February 07, 2017   doi: 10.1111/jems.12196   open full text
  • Privacy Is Precious: On the Attempt to Lift Anonymity on the Internet to Increase Revenue.
    Tobias Regner, Gerhard Riener.
    Journal of Economics &amp Management Strategy. February 07, 2017
    We investigate the effect of a reduction of anonymity on consumers' purchase decisions (whether to buy, and if so how much to pay) at an online music store with Pay‐What‐You‐Want (PWYW)‐like pricing and in an Internet experiment mimicking the real world situation. Revealing the customer's name, e‐mail, and payment to the artist (seller) led to insignificantly higher payments, although it drastically reduced the number of customers purchasing. Overall, the regime led to a revenue loss of 25%. In the online experiment, revenue drops by 35%. These results suggest that the positive effect of reduced anonymity, previously established for donation or public goods contexts, does not extend to a consumption environment. Instead, the substantial opt‐out of customers is likely to be motivated by concerns about privacy.
    February 07, 2017   doi: 10.1111/jems.12192   open full text
  • A Map of Markups: Why We Observe Mixed Behaviors of Markups.
    Seong‐Hoon Kim, Seongman Moon.
    Journal of Economics &amp Management Strategy. February 07, 2017
    This paper proposes an explanation for mixed evidence on the behaviors of markups. The key mechanism consists of two complementary channels through which firms handle uninsurable business losses. One channel is based on cost‐compensating motive, by which firms raise prices to reflect higher losses stochastically associated with higher output levels. The other channel is based on loss‐balancing motive, by which firms lower prices to countervail higher losses stochastically associated with higher output levels. The relative responsiveness of the two channels to a shock depends on each firm's fundamental characteristics and leads to a sharp division of markup cyclicality across sectors.
    February 07, 2017   doi: 10.1111/jems.12193   open full text
  • Punishment Motives for Small and Big Lies.
    Gerald Eisenkopf, Ruslan Gurtoviy, Verena Utikal.
    Journal of Economics &amp Management Strategy. February 02, 2017
    Corporate fraud typically involves deceptive financial statements that are harmful for some stakeholders. We analyze how preferences for honesty and economic fairness shape the punishment of such untruthful statements. Our laboratory experiment disentangles the crucial confound that, for deceptive financial statements, larger deviations from the truth imply both a stronger violation of the honesty norm and an increase in economic harm. Our study measures how people punish increased dishonesty controlling for the corresponding economic harm. We find that punishment increases with the size of the lie. This behavioral pattern is driven by people who are honest themselves. Our results suggest that popular demand for punitive measures in case of financial scandals reflects a genuine interest in the enforcement of social norms.
    February 02, 2017   doi: 10.1111/jems.12197   open full text
  • Honest versus Misleading Certification.
    Philippe Mahenc.
    Journal of Economics &amp Management Strategy. February 02, 2017
    This paper questions the honesty of third‐party certification in the market for a good whose environmental quality is not observable by consumers. The certifier maximizes a weighted sum of its own revenue and social welfare. The higher the relative weight placed on revenue, the stronger the certifier's incentive to mislead consumers. Certification is analyzed as a costly signaling mechanism that, besides displaying labels, transmits information through market prices. Honest certification requires that prices credibly signal environmental quality to prevent cheating. I show that certification can only be honest when the certifier is driven more by social welfare than by profit. In the reverse case, the certifier cannot help jamming the price signal, thereby granting unreliable labels.
    February 02, 2017   doi: 10.1111/jems.12195   open full text
  • Optimal Loyalty‐Based Management.
    Dongsoo Shin.
    Journal of Economics &amp Management Strategy. December 14, 2016
    We study an agency model in which an entrepreneur selects a manager from a candidate set. The selected manager's effort improves the project's potential environment, and is a hidden action. The realized project environment is the entrepreneur's private information. A manager's utility has two components—(i) loyalty, with which the manager values the organization's profit, and (ii) selfishness, with which the manager values the monetary transfer he receives from the entrepreneur. We find that if the manager's task is easy enough, it is optimal to use a purely loyal manager. Otherwise, it can be optimal to use a manager with mixture of loyalty and selfishness—the manager's mixed motivation alleviates the entrepreneur's misrepresenting incentive, and as a result, the output distortion in the optimal contract can be reduced. In addition, when it is optimal to use a manager with mixed motivations, the entrepreneur selects someone who is more selfish than loyal.
    December 14, 2016   doi: 10.1111/jems.12194   open full text
  • Bailing on the Car That Was Not Bailed Out: Bounding Consumer Reactions to Financial Distress.
    Cristian Huse, Nikita Koptyug.
    Journal of Economics &amp Management Strategy. December 07, 2016
    We examine how consumers react to the financial distress of durable goods manufacturers by studying the Swedish new car market. We employ a difference‐in‐differences matching methodology whereby we compare sales of carmaker Saab with those of a control group of substitute products. To account for possible substitution between products in the treatment and control groups, we propose and apply bounds to our difference‐in‐differences matching estimator. We then refine the bounds and provide conditions under which they depend only on product elasticities. We find that there was a significant decrease in the sales of Saab following its filing for administration.
    December 07, 2016   doi: 10.1111/jems.12184   open full text
  • Vertical Integration and Firm Productivity.
    Hongyi Li, Yi Lu, Zhigang Tao.
    Journal of Economics &amp Management Strategy. November 01, 2016
    This paper uses three cross‐industry datasets from China and other developing countries to study the effect of vertical integration on firm productivity. Our findings suggest that vertical integration has a negative impact on productivity, in contrast to recent studies based on U.S. firms. We argue that in settings with poor corporate governance, vertical integration reduces firm productivity because it enables inefficient rent‐seeking by insiders.
    November 01, 2016   doi: 10.1111/jems.12191   open full text
  • The Quality of Institutions and Organizational Form Decisions: Evidence from Within the Firm.
    Francine Lafontaine, Rozenn Perrigot, Nathan E. Wilson.
    Journal of Economics &amp Management Strategy. October 26, 2016
    In many retail and service sectors, firms have to establish a physical presence in a geographic market to access customers there. In countries where the quality of institutions is low, this can put assets at risk. We use data on the operations of a multinational, multibrand hotel company to show that in environments where local institutions are weaker—as proxied mainly by the World Bank's Checks index—the company eschews direct ownership. Rather than increasing its reliance on franchising, as predicted by some models, the company relies more on another form of organization commonly used in this industry, namely management contracts. We explain these patterns by emphasizing how the quality of the institutional environment affects the cost of using equity‐based organizational forms, per arguments in the current literature, but also the cost of enforcing the terms of franchise contracts.
    October 26, 2016   doi: 10.1111/jems.12185   open full text
  • Input Hedging, Output Hedging, and Market Power.
    David Angelis, S. Abraham Ravid.
    Journal of Economics &amp Management Strategy. October 17, 2016
    We argue that commodity input hedging is different from commodity output hedging. Output hedging can be detrimental to “sector play.” Furthermore, firms with market power that hedge outputs have incentives to over‐produce and distort market prices. In rational markets, such hedging will be expensive and we expect to see a negative relationship between hedging and market power in “output industries” but not in “input industries.” We test these predictions on a sample of S&P500 firms from 2001 to 2005. Our results support both hypotheses. Placebo tests show that the same empirical regularities do not apply to currency hedging. Finally, our empirical framework, which differentiates between hedging inputs and hedging outputs, can also help in reconciling conflicting results in prior studies.
    October 17, 2016   doi: 10.1111/jems.12180   open full text
  • Copyright Enforcement: Evidence from Two Field Experiments.
    Hong Luo, Julie Holland Mortimer.
    Journal of Economics &amp Management Strategy. September 30, 2016
    Effective dispute resolution is important for reducing private and social costs. We study how resolution responds to changes in price and communication using a new, extensive data set of copyright infringement incidences by firms. The data cover two field experiments run by a large stock‐photography agency. We find that substantially reducing the requested amount generates a small increase in the settlement rate. However, for the same reduced request, a message informing infringers of the price reduction and acknowledging the possible unintentionality generates a large increase in the settlement rate; including a deadline further increases response rate. The small price effect, compared to the large message effect, can be explained by two countervailing effects of a lower price: an inducement to settle early, but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage settlement due to the typically inadvertent nature of these incidences. The resulting higher settlement rate prevents additional legal action and significantly reduces social costs.
    September 30, 2016   doi: 10.1111/jems.12182   open full text
  • Firm‐Driven Management of Longevity Risk: Analysis of Lump‐Sum Forward Payments in Japanese Nursing Homes.
    Shinya Sugawara.
    Journal of Economics &amp Management Strategy. September 28, 2016
    This study analyzes a unique economic circumstance of longevity risk management in the Japanese private nursing home market. This circumstance takes the form of a lump‐sum forward payment of lifetime rent by residents, which leaves most longevity risk to be covered by homes. To analyze this circumstance, I construct a structural econometric model of industrial organization for this market. For the underlying structure of longevity risk, I assume that both individual consumers and nursing homes utilize the subjective evaluation. My empirical analysis detects excess payments that can be compensated for only by an unrealistically long stay in nursing homes. This finding implies the existence of the exaggerated evaluation of longevity by economic agents. Thus, appropriate government intervention to help hedge longevity risk might improve social welfare.
    September 28, 2016   doi: 10.1111/jems.12183   open full text
  • Measuring Consumer Preferences for Video Content Provision via Cord‐Cutting Behavior.
    Jeffrey Prince, Shane Greenstein.
    Journal of Economics &amp Management Strategy. September 26, 2016
    The television industry is undergoing a generational shift in structure; however, many demand‐side determinants are still not well understood. We model how consumers choose video content provision among over‐the‐air (OTA), paid subscription to cable or satellite, and online streaming (also known as over‐the‐top, or OTT). We apply our model to a U.S. data set encompassing both the digital switchover for OTA and the emergence of OTT, along with a recession, and use it to analyze cord‐cutting behavior (i.e., dropping of cable/satellite subscriptions). We find high levels of cord cutting during this time, and evidence that it became relatively more prevalent among low‐income and younger households—suggesting this group responded to changes in OTA and streaming options. We find little evidence of households weighing relative content offerings/quality when choosing their means of video provision during the timespan of our data. This last finding has important ramifications for strategic interaction between content providers.
    September 26, 2016   doi: 10.1111/jems.12181   open full text
  • Competition with Aftermarket Power When Consumers Are Heterogeneous.
    Dainis Zēgners, Tobias Kretschmer.
    Journal of Economics &amp Management Strategy. July 18, 2016
    We study a model of competitive foremarkets and partly monopolized aftermarkets. We show that high aftermarket power prompts firms to engage in inefficiently aggressive below‐cost pricing in the foremarket. This inefficiency is driven by the presence of consumers with valuations below marginal cost. While for intermediate aftermarket power their presence leads to a competition‐softening effect, for high aftermarket power firms attract increasing numbers of unprofitable consumers by aggressively pricing below cost. For high aftermarket power, firms' equilibrium profits can therefore be decreasing in aftermarket power but are always higher than for low aftermarket power. If firms engage in price discrimination by bundling the foremarket and aftermarket goods or by reducing their aftermarket power, they avoid selling to unprofitable consumers but also reduce the competition‐softening effect. This decreases firms' equilibrium profits but increases consumer and social welfare.
    July 18, 2016   doi: 10.1111/jems.12179   open full text
  • Selective Hearing: Physician‐Ownership and Physicians’ Response to New Evidence.
    David H. Howard, Guy David, Jason Hockenberry.
    Journal of Economics &amp Management Strategy. May 22, 2016
    Physicians, acting in their role as experts, are often faced with situations where they must trade off personal and patient welfare. Physicians’ incentives vary based on the organizational environment in which they practice. We use the publication of a major clinical trial, which found that a common knee operation does not improve outcomes for patients with osteoarthritis, as an “informational shock” to gauge the impact of physicians’ agency relationships on treatment decisions. Using a 100% sample of procedures in Florida from 1998 to 2010, we find that publication of the trial reduced procedure volume, but the magnitude of the decline was smaller in physician‐owned surgery centers. Incentives affected physicians’ reactions to evidence.
    May 22, 2016   doi: 10.1111/jems.12178   open full text
  • Do Dominant Firms Provide More Training?
    Christos Bilanakos, Colin P. Green, John S. Heywood, Nikolaos Theodoropoulos.
    Journal of Economics &amp Management Strategy. May 03, 2016
    A canonical Cournot competition model shows that the profitability of training can increase as the number of competitors decreases. British establishment evidence from 1998, 2004, and 2011 confirms that firms in less competitive markets provide more formal training. This persists within three separate cross‐sections and in two separate panel estimates. It persists with alternative measures of training, with alternative measures of market competition and in estimates designed to account for endogeneity. These results suggest that a dominant product market position, indeed, increases the incentives to invest in training.
    May 03, 2016   doi: 10.1111/jems.12177   open full text
  • Learning through Simultaneous Play: Evidence from Penny Auctions.
    Ricardo Gonçalves, Miguel A. Fonseca.
    Journal of Economics &amp Management Strategy. April 01, 2016
    This paper contributes to the emerging empirical literature on penny auctions, a particular type of all‐pay auctions. We focus on the potential learning effects that bidders may experience over time but also (and particularly) across auctions as a result of their auction participation. Using detailed bid‐level information, we find that, similarly to earlier literature, bidders suffer from a sunk cost fallacy, whereby their probability of dropping out of an auction is decreasing in the number of bids they have already placed in that auction. Although we do find that learning through repeated participation alleviates the sunk cost fallacy, participation in simultaneous penny auctions emerges as a much more effective learning mechanism, ultimately contributing toward bidders earning higher individual surpluses.
    April 01, 2016   doi: 10.1111/jems.12174   open full text
  • Taking the Leap: The Determinants of Entrepreneurs Hiring Their First Employee.
    Robert W. Fairlie, Javier Miranda.
    Journal of Economics &amp Management Strategy. March 29, 2016
    Job creation is one of the most important aspects of entrepreneurship, but we know relatively little about the hiring patterns and decisions of start‐ups. Longitudinal data from the Integrated Longitudinal Business Database (iLBD), Kauffman Firm Survey (KFS), and the Growing America through Entrepreneurship (GATE) experiment are used to provide some of the first evidence in the literature on the determinants of taking the leap from a nonemployer to employer firm among start‐ups. Several interesting patterns emerge regarding the dynamics of nonemployer start‐ups hiring their first employee. Hiring rates among the universe of nonemployer start‐ups are very low, but increase when the population of nonemployers is focused on more growth‐oriented businesses such as incorporated and employer identification number businesses. If nonemployer start‐ups hire, the bulk of hiring occurs in the first few years of existence. After this point in time, relatively few nonemployer start‐ups hire an employee. Focusing on more growth‐ and employment‐oriented start‐ups in the KFS, we find that Asian‐owned and Hispanic‐owned start‐ups have higher rates of hiring their first employee than white‐owned start‐ups. Female‐owned start‐ups are roughly 10 percentage points less likely to hire their first employee by the first, second, and seventh years after start‐up. The education level of the owner, however, is not found to be associated with the probability of hiring an employee. Among business characteristics, we find evidence that business assets and intellectual property are associated with hiring the first employee. Using data from the largest random experiment providing entrepreneurship training in the United States ever conducted, we do not find evidence that entrepreneurship training increases the likelihood that nonemployers hire their first employee.
    March 29, 2016   doi: 10.1111/jems.12176   open full text
  • Information Acquisition and the Equilibrium Incentive Problem.
    Alice Peng‐Ju Su.
    Journal of Economics &amp Management Strategy. March 29, 2016
    I study the optimal incentive provision in a principal–agent relationship with costly information acquisition by the agent. I emphasize that adverse selection or moral hazard is the principal's endogenous choice by inducing or deterring information acquisition. The principal designs the contract not only to address an existing incentive problem but also to implement its presence. Implementation of adverse selection relies on a steeper information rent to the agent than the standard menu, such that the agent is motivated to distinguish the efficient state of nature from the inefficient. Moral hazard is implemented by replacing the benchmark debt contract with a debt‐with‐equity‐share contract, such that the agent does not attempt to acquire information to either avoid debt or to extract rent.
    March 29, 2016   doi: 10.1111/jems.12175   open full text
  • Venture Capital Investments in Europe and Portfolio Firms' Economic Performance: Independent Versus Corporate Investors.
    Massimo G. Colombo, Samuele Murtinu.
    Journal of Economics &amp Management Strategy. March 27, 2016
    Using a new European Commission‐sponsored longitudinal dataset—the VICO dataset—we assess the impact of independent (IVC) and corporate venture capital (CVC) investments on the economic performance of European high‐tech entrepreneurial firms during the period 1992–2010. After controlling for potential sources of endogeneity and selection bias, our results indicate that both IVC and CVC investments boost portfolio firms' economic performance. These effects are mostly due to an increase in real sales value. Moreover, the dynamics of the impact of VC investments on firms’ overall economic performance and its components—real sales value, real fixed assets, and real labor costs—differs depending on the type of investor. Finally, we do not detect any impact related to the syndication of investments by both IVC and CVC investors.
    March 27, 2016   doi: 10.1111/jems.12170   open full text
  • Advertising Media Planning, Optimal Pricing, and Welfare.
    Lola Esteban, José M. Hernández.
    Journal of Economics &amp Management Strategy. March 27, 2016
    This paper analyzes optimal media planning strategies in a pricing‐advertising competition model where firms can use mass and specialized advertising. We find that although targeted advertising avoids the wasting of ads, firms might find it optimal to mix specialized advertising with the mass media. We also show that the characteristics of the specialized media available crucially affect the outcome of price competition between firms, which can range from a full fragmentation of the market into local monopolies to lower average prices (compared to the case where firms had only mass advertising available). Regarding welfare, we prove that although the use of specialized advertising can lower consumer surplus and drive a fragment of consumers out of the market, this advertising technology is welfare‐improving, and can be Pareto superior.
    March 27, 2016   doi: 10.1111/jems.12173   open full text
  • Voluntary Assurance of Voluntary CSR Disclosure.
    Mark Bagnoli, Susan G. Watts.
    Journal of Economics &amp Management Strategy. March 21, 2016
    We study a firm's decisions to engage in socially responsible activities, voluntarily report on them, and purchase external assurance of the report. In our signaling model, neither firm type nor the level of activity is observed. We show that if voluntary assurance is not too expensive, the firm that engages in more socially responsible activities purchases external assurance and thus “selects” a separating equilibrium. As a result, CSR reports can be used to infer the level of activity and this causes all firms to engage in more socially responsible activity. Further, when voluntary assurance is required to support a separating equilibrium, greater monitoring by social activists increases the chosen quality of voluntary assurance—voluntary assurance and monitoring by social activists are complements, not substitutes.
    March 21, 2016   doi: 10.1111/jems.12171   open full text
  • Imminent Entry and the Transition to Multimarket Rivalry in a Laboratory Setting.
    Charles F. Mason, Owen R. Phillips.
    Journal of Economics &amp Management Strategy. March 21, 2016
    In this paper we study the behavior of rivals when there is a known probability of imminent entry. Experimental markets are used to collect data on pre‐ and postentry production when there is an announced time of possible entry; some markets experience entry and other do not. In all preentry markets competition is more intense. Postentry behavior in all markets is more competitive compared to a baseline that had no threat. There is evidence that postentry multimarket contact raises outputs in those markets that did not experience entry, behavior we generally refer to as a conduit effect.
    March 21, 2016   doi: 10.1111/jems.12169   open full text
  • When Does Aftermarket Monopolization Soften Foremarket Competition?
    Yuk‐fai Fong, Jin Li, Ke Liu.
    Journal of Economics &amp Management Strategy. March 21, 2016
    This paper investigates firms' abilities to tacitly collude when they each monopolize a proprietary aftermarket. When firms' aftermarkets are completely isolated from foremarket competition, they cannot tacitly collude more easily than single‐product firms. However, when their aftermarket power is contested by foremarket competition as equipment owners view new equipment as a substitute for their incumbent firm's aftermarket product, profitable tacit collusion is sustainable among a larger number of firms. Conditions under which introduction of aftermarket competition hinders firms' ability to tacitly collude are characterized.
    March 21, 2016   doi: 10.1111/jems.12167   open full text
  • Match‐Fixing in a Monopoly Betting Market.
    Parimal Kanti Bag, Bibhas Saha.
    Journal of Economics &amp Management Strategy. March 11, 2016
    A monopolist bookmaker may set betting odds on a fairly even contest to induce match‐fixing by an influential corrupt punter. His loss to the corrupt punter is more than made up for by enticing enough ordinary punters to bet on the losing team. This result is in sharp contrast to competitive bookmaking, where even contests have been shown to be immune to fixing. The analysis also reveals a surprising result that the incidence of match‐fixing can dramatically fall when match‐fixing opportunities rise. This is shown by comparing two scenarios—when only one team is corruptible and when both are corruptible. For both teams corruptible, the bookmaker is uncertain about to which team the influential punter will have access, so carefully maneuvering the odds to induce match‐fixing is too costly.
    March 11, 2016   doi: 10.1111/jems.12172   open full text
  • The Role of Coordination Bias in Platform Competition.
    Hanna Hałaburda, Yaron Yehezkel.
    Journal of Economics &amp Management Strategy. March 04, 2016
    This paper considers platform competition in a two‐sided market that includes buyers and sellers. One of the platforms benefits from a favorable coordination bias in the market, in that for this platform it is less costly than for the other platform to convince customers that the two sides will coordinate on joining it. We find that the degree of the coordination bias affects the platform's decision regarding the business model (i.e., whether to subsidize buyers or sellers), the access fees, and the size of the platform. A slight increase in the coordination bias may induce the advantaged platform to switch from subsidizing sellers to subsidizing buyers, or induce the disadvantaged platform to switch from subsidizing buyers to subsidizing sellers. Moreover, in such a case the advantaged platform switches from oversupplying to undersupplying sellers, and the disadvantaged platform switches from undersupplying to oversupplying sellers.
    March 04, 2016   doi: 10.1111/jems.12163   open full text
  • Team Incentives and Reference‐Dependent Preferences.
    Kohei Daido, Takeshi Murooka.
    Journal of Economics &amp Management Strategy. March 04, 2016
    We investigate a multi‐agent moral‐hazard model where agents have expectation‐based reference‐dependent preferences à la Kőszegi and Rabin (2006, 2007). We show that even when each agent's probability of success in a project is independent, a principal may employ team incentives. Because the agents are loss averse, they have first‐order risk aversion to wage uncertainty. This causes the agents to work harder when their own failure is stochastically compensated through other agents' performance. In the optimal contract, agents with high performance are always rewarded, whereas agents with low performance are rewarded if and only if other agents' performance is high.
    March 04, 2016   doi: 10.1111/jems.12166   open full text
  • Role of Information Rents in Relational Contracts.
    Akifumi Ishihara.
    Journal of Economics &amp Management Strategy. March 01, 2016
    We study a repeated contracting model in which the agent has private information and the performance measure is unverifiable. In an optimal stationary contract, when the discount factor is not high, the principal's objective shifts from purely reducing the information rent toward increasing the total surplus to sustain the relational contract. As a result, the total surplus is not monotonically increasing in the discount factor and could decrease when the unverifiable performance measure becomes verifiable.
    March 01, 2016   doi: 10.1111/jems.12168   open full text
  • Autonomy and Monitoring.
    Marco a. Barrenechea‐méndez, Pedro Ortín‐Ángel, Eduardo C. Rodes.
    Journal of Economics &amp Management Strategy. February 29, 2016
    This paper provides a theoretical and empirical analysis of an under‐explored consequence of granting autonomy to workers: monitoring. In the principal‐agent model that we develop, granting autonomy allows workers to carry out innovative tasks in the workplace. Given that innovative tasks are more difficult to monitor, the model predicts a positive relationship between autonomy and monitoring. Relying on information about blue‐collar workers coming from a dataset of Spanish industrial plants, we provide strong support for this prediction.
    February 29, 2016   doi: 10.1111/jems.12164   open full text
  • Do Business Groups Change With Market Development?
    Borja Larrain, Francisco Urzúa I.
    Journal of Economics &amp Management Strategy. February 29, 2016
    Khanna and Yafeh hypothesize that business groups should be more common in economies with less developed markets and institutions. We test the time‐series version of this hypothesis by looking at changes in Chilean groups over 20 years (1990–2009). In this period, Chile experienced a deep economic transformation as measured by common proxies of market development (e.g., per capita income doubled). Despite this dramatic transformation, groups remained mostly unchanged in terms of relative size, industrial diversification, vertical integration, control structures, internal capital markets, and reliance on external funds (minority equity plus debt). Only leverage increased. Also, groups' initial conditions were uncorrelated with market development at the time of formation. This evidence casts doubts on the institutional‐voids hypothesis, although more subtle institutional voids, not captured by the type of macro proxies we use, might explain the existence and resilience of business groups.
    February 29, 2016   doi: 10.1111/jems.12165   open full text
  • The Effect of Performance Standards on Health Care Provider Behavior: Evidence from Kidney Transplantation.
    Sarah S. Stith, Richard A. Hirth.
    Journal of Economics &amp Management Strategy. February 09, 2016
    Performance standards are designed to ensure a basic level of quality, and through public reporting of firm performance, encourage firms to compete on quality thus allowing the market to determine the optimal level of quality. In markets with substantial excess demand, however, demand effects may be insufficient to induce any change in firm behavior and enforcement may be required to ensure high quality. Even with enforcement, quality still may not improve at underperforming firms if gaming the system is less costly than improving quality. We test whether information alone or with regulatory enforcement improves outcomes or elicits gaming behavior in our study of 266 kidney transplant centers between 2001 and 2012. In a context of excess demand induced by price controls, we show that information alone has no impact and enforcement may actually increase market inefficiencies; firms respond to costly quality requirements, not by improving quality, but by reducing supply, which exacerbates the disequilibrium between supply and demand, and by cream‐skimming, which reduces access to transplantation among sicker patients.
    February 09, 2016   doi: 10.1111/jems.12161   open full text
  • Self‐Regulation and the Market for Activism.
    David P. Baron.
    Journal of Economics &amp Management Strategy. February 02, 2016
    This paper presents a theory of the market for activism where citizens fund activists, campaigning activists pressure firms to change their practices, and firms self‐regulate to forestall or mitigate campaigns. Activists have leverage because firms must self‐regulate before they are targeted, and their self‐regulation must deter the activists conditional on being targeted. Activists anticipate gaining more from campaigns against soft (more vulnerable) firms than hard (less vulnerable) firms, so it is more costly for soft firms to forestall the activists, and some risk a campaign but self‐regulate to mitigate the probability that the campaign succeeds. Campaigns thus can occur in equilibrium. The threat from activism is the probability that a firm is targeted, and the stronger the threat the fewer campaigns there are because more firms self‐regulate to forestall a campaign. Radical activists target harder firms than do moderate activists, and the more radical the activists the more costly it is to forestall them. Some firms are too hard to be threatened by activism and maximize their profits. Firms that are too hard to target directly may be vulnerable to campaigns threatening their supply and distribution chains. Activists and their donors have an incentive to maximize the scope of activism; that is, the breadth of the threat from activism.
    February 02, 2016   doi: 10.1111/jems.12162   open full text
  • Location, Proximity, and M&A Transactions.
    Ye Cai, Xuan Tian, Han Xia.
    Journal of Economics &amp Management Strategy. December 21, 2015
    In this paper, we examine how the geographic location of firms affects acquisition decisions and value creation for acquirers in takeover transactions. We find that firms located in an urban area are more likely to receive a takeover bid and complete a takeover transaction as a target than firms located in rural areas, and takeover deals involving an urban target are associated with higher acquirer announcement returns, after controlling for the proximity between the target and the acquirer. In addition, a target's urban location significantly attenuates the negative effect of a long distance between the target and the acquirer on acquirer returns, a fact that is documented in the existing literature. Our findings reveal a previously underexplored force—firm location—that can affect takeover transactions, in addition to proximity. Our paper suggests that a firm's location plays an important role in facilitating the dissemination of soft information and enhancing information‐based synergies.
    December 21, 2015   doi: 10.1111/jems.12159   open full text
  • Endogenous Group Formation in Contests: Unobservable Sharing Rules.
    Kyung Hwan Baik.
    Journal of Economics &amp Management Strategy. December 18, 2015
    We study contests in which players compete by expending irreversible effort to win a prize, the prize is awarded to one of the players, the winner shares the prize with other players in his group, if any, and each group's sharing rule is unobservable to the other groups and the singletons, if any, when the players expend their effort. The number of groups, their sizes, and the number of singletons are exogenous in the first model, whereas they are endogenous in the second model. We show that group formation occurs if the number of players is four or smaller, but does not occur otherwise. We examine the effect of endogenous group formation on total effort level and the profitability of endogenous group formation. In each of the two models, comparing the outcomes of the case of unobservable sharing rules with those of the case of observable sharing rules, we show that the two cases yield quite different outcomes.
    December 18, 2015   doi: 10.1111/jems.12150   open full text
  • Human Capital Investment and Work Incentives.
    Matthias Kräkel.
    Journal of Economics &amp Management Strategy. December 18, 2015
    Traditional human capital theory based on the work by Gary Becker shows that firms do not invest in general human capital but offer firm‐specific training that is only useful for the training firm. I extend the traditional approach by adding two natural assumptions—workers cannot be forced to acquire new knowledge, and they exert unobservable effort to produce valuable output for their employer. I show under which conditions firms do not offer firm‐specific training but invest in general human capital, which increases the workers' outside option. This investment behavior is well in line with the documented prevalence of industry‐specific and occupation‐specific human capital over firm‐specific human capital.
    December 18, 2015   doi: 10.1111/jems.12155   open full text
  • Customer Privacy and Competition.
    Oz Shy, Rune Stenbacka.
    Journal of Economics &amp Management Strategy. December 18, 2015
    We analyze how different degrees of privacy protection affect industry profits, consumer welfare, and total welfare in a model with switching costs. Firms earn higher profits under weak privacy protection compared with strong or no privacy protection. The relationship between the degree of privacy protection and equilibrium profits is not monotonic. Consumer surplus and total welfare increase with the degree of privacy protection unless firms recognize consumer‐specific switching costs. In that case, pricing conditional on switching costs has favorable implications for consumer surplus and total welfare.
    December 18, 2015   doi: 10.1111/jems.12157   open full text
  • The Value of Employee Retention: Evidence From a Natural Experiment.
    Kenneth A. Younge, Matt Marx.
    Journal of Economics &amp Management Strategy. December 17, 2015
    We estimate the firm‐level returns to retaining employees using difference‐in‐differences analysis and a natural experiment where the enforcement of employee noncompete agreements was inadvertently reversed in Michigan. We find that noncompete enforcement boosted the short‐term value of publicly traded companies by approximately 9%. The effect is increasing in local competition and growth opportunities, and offset by patenting.
    December 17, 2015   doi: 10.1111/jems.12154   open full text
  • Investment and Capital Structure of Partially Private Regulated Firms.
    Carlo Cambini, Yossi Spiegel.
    Journal of Economics &amp Management Strategy. December 16, 2015
    We develop a model that examines the capital structure and investment decisions of regulated firms in a setting that incorporates two key institutional features of the public utilities sector in many countries: firms are partially owned by the state and regulators are not necessarily independent. Among other things, we show that regulated firms issue more debt, invest more, and enjoy higher regulated prices when they face more independent regulators, are more privatized, and when regulators are more pro‐firm. Moreover, regulatory independence, higher degree of privatization, and pro‐firm regulatory climate are associated with higher social welfare.
    December 16, 2015   doi: 10.1111/jems.12153   open full text
  • The Role of Public Information in Corporate Social Responsibility.
    Aleix Calveras, Juan‐José Ganuza.
    Journal of Economics &amp Management Strategy. December 16, 2015
    Many of the attributes that make a good “socially responsible” (SR) are credence attributes that cannot be learned by consumers either through search or experience. Consumers, then, use for their purchasing decisions “noisy” information about these attributes obtained from potentially contradictory channels (media, advertisement, NGOs). In this paper we model such informational framework and show the positive relationship between the accuracy of the information transmitted to consumers and corporate social responsibility. We also show that a firm may be tempted to add noise to the information channel (through lobbying of the media), which might reduce the supply of the SR attributes and even harm the firm itself (with lower profits). It might then be profitable to the firm to commit ex ante to not manipulate the information regarding the firm's business practices (e.g., with a partnership with an NGO). Finally, we extend our model to a competition framework endogenizing the number of firms active in the SR segment. We show both that in more transparent markets a larger number of firms will be SR, and that in a market with more intense competition, a higher degree of transparency is required in order to sustain a given number of SR firms.
    December 16, 2015   doi: 10.1111/jems.12156   open full text
  • The Welfare Effects of Consumers' Reports of Bribery.
    J. Atsu Amegashie.
    Journal of Economics &amp Management Strategy. December 15, 2015
    A primary means of bureaucratic oversight is consumer complaints. Yet this important control mechanism has received very little attention in the literature on corruption. I study a signaling game of corruption in which uninformed consumers require a government service from informed officials. A victim of corruption can report corrupt officials whose supervisors are negligent or conscientious but an official's type is his private information. I find that social welfare may be nonmonotonic in the proportion of conscientious supervisors. Several examples show that an increase in the proportion of conscientious supervisors decreases social welfare if the mass of conscientious supervisors is below a critical level. I find that this perverse result does not hold if (a) the bribe is very large, or (b) bribe‐giving is legalized. I also find that there is an equilibrium in which no one reports corruption.
    December 15, 2015   doi: 10.1111/jems.12149   open full text
  • Leveraging of Reputation through Umbrella Branding: The Implications for Market Structure.
    Eric B. Rasmusen.
    Journal of Economics &amp Management Strategy. December 15, 2015
    The Klein–Leffler model explains how fear of reputation loss can induce firms to produce high‐quality experience goods. This paper shows that reputation can be leveraged across products via umbrella branding, but only by a firm with a monopoly on at least one product. Such a firm may be able to capture a market by using umbrella branding to make high quality credible at a lower price than the incumbent competitive firms. If monopolists compete for this capture, consumers are left better off than if the market remained competitive, in some cases even though the price increases.
    December 15, 2015   doi: 10.1111/jems.12145   open full text
  • The Impact of Information Availability on Destination Choice.
    F. Combes, A. De Palma.
    Journal of Economics &amp Management Strategy. December 15, 2015
    Consider a population of agents who choose one among a set of destinations located along a rectilinear road. Each of these destinations has a certain utility, modeled by a random variable. We compare a situation where the agents have to explore the destinations to observe the value of their utilities, to a situation where they know these values beforehand. We show that more information yields a higher welfare to the agents, and also, perhaps counter‐intuitively, higher distance traveled.
    December 15, 2015   doi: 10.1111/jems.12152   open full text
  • Imperfect Behavior‐Based Price Discrimination.
    Stefano Colombo.
    Journal of Economics &amp Management Strategy. December 15, 2015
    In this article, we develop a model encompassing behavior‐based discriminatory pricing as a limit case of a more general framework where firms have incomplete information about consumers’ purchase histories. We show that information accuracy has a nonmonotonic impact on profits and the worst situation for firms is when information accuracy is intermediate. We also discuss welfare and consumer surplus implications of information accuracy. Although welfare monotonically decreases with the level of information accuracy, there is an inverse U‐shape relationship between consumers surplus and information accuracy.
    December 15, 2015   doi: 10.1111/jems.12137   open full text
  • Capacity Investment under Demand Uncertainty: The Role of Imports in the U.S. Cement Industry.
    Guy Meunier, Jean‐Pierre Ponssard, Catherine Thomas.
    Journal of Economics &amp Management Strategy. December 14, 2015
    Demand uncertainty is thought to influence irreversible capacity decisions. Suppose that local demand can be sourced from domestic (rigid) production or from (flexible) imports. This paper shows that the optimal domestic capacity is either increasing or decreasing with demand uncertainty, depending on the relative level of the costs of domestic production and imports. We test this relationship with data from the U.S. cement industry, in which the difference in marginal cost between domestic production and imports varies across local U.S. markets because cement is costly to transport over land. Industry data for 1999 to 2010 are consistent with the predictions of the model. The introduction of two technologies to the production set—one rigid and one flexible—is crucial to understanding the relationship between capacity choice and uncertainty in this industry because there is no relationship between these two variables in aggregated U.S. data. Our analysis reveals that the relationship is negative in coastal districts, and significantly more positive in landlocked districts.
    December 14, 2015   doi: 10.1111/jems.12135   open full text
  • Strategic and Natural Risk in Entrepreneurship: An Experimental Study.
    John Morgan, Henrik Orzen, Martin Sefton, Dana Sisak.
    Journal of Economics &amp Management Strategy. December 14, 2015
    We report on the results of experiments where participants choose between entrepreneurship and an outside option. Entrepreneurs enter a market and then make investment decisions to capture value. Payoffs depend on both strategic risk (i.e., the investments of other entrepreneurs) and natural risk (i.e., luck). Absent natural risk, participants endogenously sort themselves into entrepreneurial and safe types, and returns from the two paths converge. Adding natural risk fundamentally changes these conclusions: Here we observe excessive entry and excessive investment so that entrepreneurs earn systematically less than the outside option. These payoff differences persist even after many repetitions of the task. With a risky outside option, entry further increases and about one‐third of entrepreneurs adopt a passive strategy, investing little or nothing. Finally, we examine an environment where an individual must become an entrepreneur but chooses the stakes over which she will compete. Due to under‐entry and under‐investment in the high stakes setting, the returns gap grows to over 15 percentage points. A two‐factor model incorporating loss aversion and love of winning can rationalize these returns patterns.
    December 14, 2015   doi: 10.1111/jems.12140   open full text
  • Career Concerns and Product Market Competition.
    Fabio Feriozzi.
    Journal of Economics &amp Management Strategy. December 14, 2015
    This paper studies the effect of increased competition in the product market on managerial incentives. I propose a simple model of career concerns where firms are willing to pay for managerial talent to reduce production costs, but also to subtract talented executives from competitors. This second effect is privately valuable to firms, but is socially wasteful. As a result, equilibrium pay for talent can be inefficiently high and career concerns too strong. Explicit incentive contracts do not solve the problem, but equilibrium pay is reduced if managerial skills have firm‐specific components, or if firms are heterogeneous. In this second case, managers are efficiently assigned to firms, but equilibrium pay reflects the profitability of talent outside the efficient allocation. The effect of increased competition is ambiguous in general, and depends on the profit sensitivity to cost reductions. This ambiguity is illustrated in two examples of commonly used models of imperfect competition.
    December 14, 2015   doi: 10.1111/jems.12133   open full text
  • Performance Pay and Offshoring.
    Elias Dinopoulos, Theofanis Tsoulouhas.
    Journal of Economics &amp Management Strategy. December 14, 2015
    In this paper, we construct a North–South general equilibrium model of offshoring, highlighting the nexus among endogenous effort‐based labor productivity and the structure of wages. Offshoring is modeled as international transfer of management practices and production techniques that allow Northern firms to design and implement performance compensation contracts. Performance–pay contracts address moral hazard issues stemming from production uncertainty and unobserved worker effort. We find that worker effort augments productivity and compensation of those workers assigned to more offshorable tasks. An increase in worker effort in the South, caused by a decline in offshoring costs, an increase in worker skill, or a decline in production uncertainty in the South, increases the range of offshored tasks and makes workers in the North and South better off. An increase in Southern labor force increases the range of offshored tasks, benefits workers in the North, and hurts workers in the South. International labor migration from low‐wage South to high‐wage North shrinks the range of offshored tasks, makes Northern workers worse off and Southern workers (emigrants and those left behind) better off. Higher worker effort in the North, caused by higher worker skills or lower degree of production uncertainty, decreases the range of offshored tasks and benefits workers in the North and South.
    December 14, 2015   doi: 10.1111/jems.12144   open full text
  • Buying Decision Coordination and Monopoly Pricing of Network Goods.
    Pekka Sääskilahti.
    Journal of Economics &amp Management Strategy. December 14, 2015
    We analyze how uncertainty about consumers' preferences affects the pricing of a network device and the interaction usage it enables. A premium device price may give high hardware profits, but adoption will be low reducing the profits from interaction services. The firm internalizing this adjusts its hardware price downward, and prices as if it was getting the maximal interaction usage profits from the full network. Profits decrease in uncertainty, whereas consumer surplus increases in uncertainty, but only if the level of uncertainty is high. Bundling the device and services is profitable if uncertainty relates mostly to consumers' private information.
    December 14, 2015   doi: 10.1111/jems.12138   open full text
  • Bargains Followed by Bargains: When Switching Costs Make Markets More Competitive.
    Jason Pearcy.
    Journal of Economics &amp Management Strategy. December 14, 2015
    In markets where consumers have switching costs and firms cannot price‐discriminate, firms have two conflicting strategies. A firm can either offer a low price to attract new consumers and build future market share or a firm can offer a high price to exploit the partial lock‐in of their existing consumers. This paper develops a theory of competition when overlapping generations of consumers have switching costs and firms produce differentiated products. Competition takes place over an infinite horizon with any number of firms. This paper shows that the relationship between the level of switching costs, firms' discount rate, and the number of firms determines whether firms offer low or high prices. Similar to previous duopoly studies, switching costs are likely to facilitate lower (higher) equilibrium prices when switching costs are small (large) or when a firm's discount rate is large (small). Unlike previous studies, this paper demonstrates that the number of firms also determines whether switching costs are pro‐ or anticompetitive, and with a sufficiently large (small) number of firms switching costs are pro‐ (anti‐) competitive.
    December 14, 2015   doi: 10.1111/jems.12158   open full text
  • Revealing Incentives for Compatibility Provision in Vertically Differentiated Network Industries.
    Filomena Garcia, Cecilia Vergari.
    Journal of Economics &amp Management Strategy. December 14, 2015
    We determine the incentives for compatibility provision of firms that produce network goods with different intrinsic qualities when firms do not have veto power over compatibility. When network effects are strong, there are multiple equilibria in pricing and consumer decisions. We show that in some equilibria, it is the high‐quality firm that invests in compatibility, whereas in others, the low‐quality firm triggers compatibility. The socially optimal compatibility degree is zero, except under very strong network effects, where one of the equilibria has all consumers buying the low‐quality good. In this case, a partial degree of compatibility is optimal.
    December 14, 2015   doi: 10.1111/jems.12146   open full text
  • Task‐Specific Human Capital and Organizational Inertia.
    Josse Delfgaauw, Otto H. Swank.
    Journal of Economics &amp Management Strategy. December 14, 2015
    Employees' incentive to invest in their task proficiency depends on the likelihood that they will execute the same tasks in the future. Changes in tasks can be warranted as a result of technological progress and changes in firm strategy as well as from fine‐tuning job design and from monitoring individuals' performance. However, the possibility of a change in tasks reduces employees' incentive to invest in task‐specific skills. We develop a simple two‐period principal–agent model showing that some degree of inertia benefits the principal. We then analyze how organizations can optimally combine several policies to approach the optimal degree of inertia. In particular, we consider the optimal mixture of (abstaining from) exploration, managerial vision, organizational task‐specific investments, and incentive pay. Our analysis yields testable predictions concerning the relations between these organizational policies.
    December 14, 2015   doi: 10.1111/jems.12142   open full text
  • Diversity, Social Goods Provision, and Performance in the Firm.
    Sara Fisher Ellison, Wallace P. Mullin.
    Journal of Economics &amp Management Strategy. April 04, 2014
    Economists have studied the effect of diversity on the provision of social goods and the stock of social capital. In parallel, management scholars have studied the effect of diversity in the workplace on firm performance. We integrate these two growing literatures and explore these questions with a unique dataset. A firm provided eight years of individual‐level employee survey data, which include measures of the stock of social capital, plus office‐level measures of diversity and performance. We find some evidence that more gender‐homogeneous offices enjoy higher levels of social goods provision but those offices do not perform any better and may actually perform worse.
    April 04, 2014   doi: 10.1111/jems.12051   open full text
  • Public Report, Price, and Quality.
    Ching‐to Albert Ma, Henry Y. Mak.
    Journal of Economics &amp Management Strategy. April 04, 2014
    A monopolist produces a good with two qualities. All consumers have the same valuation of the first quality, but their valuations of the second vary, and are their private information. A public agency can verify qualities, and make credible reports to consumers. In Full Quality Report, the public agency reports both qualities. In Average Quality Report, it reports a weighted average of qualities. The equilibrium prices and qualities in Full Quality Report can be implemented by Average Quality Report. Equilibrium prices and qualities in Average Quality Report give higher consumer surplus than Full Quality Report. Bertrand competition under Average Quality Report yields first‐best prices and qualities.
    April 04, 2014   doi: 10.1111/jems.12050   open full text
  • Tacit Collusion in a One‐Shot Game of Price Competition with Soft Capacity Constraints.
    Marie‐Laure Cabon‐Dhersin, Nicolas Drouhin.
    Journal of Economics &amp Management Strategy. April 04, 2014
    This paper analyzes price competition in the case of two firms operating under constant returns to scale with more than one production factor. Factors are chosen sequentially in a two‐stage game generating a soft capacity constraint and implying a convex short‐term cost function in the second stage of the game. We show that tacit collusion is the only predictable result of the whole game, that is, the unique payoff‐dominant pure strategy Nash equilibrium. Technically, this paper bridges the capacity constraint literature on price competition and that of the convex cost function.
    April 04, 2014   doi: 10.1111/jems.12049   open full text
  • Different Problem, Same Solution: Contract‐Specialization in Venture Capital.
    Ola Bengtsson, Dan Bernhardt.
    Journal of Economics &amp Management Strategy. April 04, 2014
    Real‐world financial contracts vary greatly in the combinations of cash flow contingency terms and control rights used. Extant theoretical work explains such variation by arguing that each investor finely tailors contracts to mitigate investment‐specific incentive problems. We provide overwhelming evidence from 4,561 venture capital (VC) contracts that this tailoring is overstated: even though there is broad variation in contracting across VCs, each individual VC tends to specialize, recycling familiar terms. In fact, a VC typically restricts contracting choices to a small set of alternatives: 46% of the time, a VC uses the same exact cash flow contingencies as in one of her previous five contracts. We document specialization in both aggregated downside protection, and in each individual cash flow contingency term. Such specialization remains economically and statistically significant even after controlling for VC and company characteristics. We also find that VCs learn to use new contractual solutions from other VCs in her syndication network. Our findings challenge the traditional premise that each investor selects from the universe of combinations of terms to match an investment's unique contracting problem. Rather, the cumulative evidence indicates that contract‐specialization arises because investors better understand payoff consequences of familiar terms, and are reluctant to experiment with unknown combinations.
    April 04, 2014   doi: 10.1111/jems.12055   open full text
  • There's No Place Like Home: The Profitability Gap between Headquarters and their Foreign Subsidiaries.
    Matthias Dischinger, Bodo Knoll, Nadine Riedel.
    Journal of Economics &amp Management Strategy. April 04, 2014
    Using data on European firms, this paper provides evidence that an overproportional fraction of multinational group profits accrues with the corporate headquarters. Quantitatively, the estimates suggest that headquarters are by around 25% more profitable than their foreign subsidiaries, whereas this gap tends to decline over time. The effect turns out to be robust against controlling for observed and unobserved heterogeneity between the entities. Analogous (although quantitatively smaller) effects are found for national groups. We discuss various welfare implications of our findings.
    April 04, 2014   doi: 10.1111/jems.12058   open full text
  • Vertical Integration and Exclusive Behavior of Insurers and Hospitals.
    Rudy Douven, Rein Halbersma, Katalin Katona, Victoria Shestalova.
    Journal of Economics &amp Management Strategy. April 04, 2014
    We examine vertical integration and exclusive behavior in health care markets in which insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model of two hospitals and two health insurers competing on premiums. We show that asymmetric equilibria exist in which one insurer contracts one hospital whereas the other insurer contracts both hospitals, even if all players are equally efficient in their production. Asymmetric equilibria arise if hospitals are sufficiently differentiated. In these cases, total industry profits increase and consumer welfare decreases in comparison to the case in which both insurers have contracts with both hospitals. Vertical integration makes these equilibria possible for a wider range of parameters.
    April 04, 2014   doi: 10.1111/jems.12056   open full text
  • Brand Management and Strategies Against Counterfeits.
    Yi Qian.
    Journal of Economics &amp Management Strategy. April 04, 2014
    In this paper, I provide a theory for brand‐protection strategies to reduce counterfeiting under weak intellectual property rights. My theoretical framework has general implications for endogenous sunk cost investments as a means of deterring counterfeiters. My model incorporates two layers of asymmetric information that counterfeits can incur: counterfeiters fooling consumers and buyers of counterfeits fooling other consumers. Brands have a number of tools at their disposal to maintain a separating equilibrium in the face of counterfeits. One of the theoretical predictions of this study is that counterfeit entry induces incumbent brands to introduce new products. This helps to explain the innovation strategies that authentic firms employ in response to entry by counterfeiters in practice. Authentic prices rise if and only if the counterfeit quality is lower than a threshold level. In addition, the model demonstrates how authentic producers could invest in self‐enforcement to increase counterfeiters' incentives to separate themselves from brands. Better channel management through company stores and other costly devices are forms of nonprice signals and complement a company's own enforcements against counterfeits. These predictions are validated using unique panel data collected from Chinese shoe companies covering the years 1993–2004. Data further reveal that companies with worse relationships with the government invest more in various self‐enforcement strategies, which are effective in reducing counterfeit sales, and that the set of strategies are complements rather than substitutes for each other.
    April 04, 2014   doi: 10.1111/jems.12057   open full text
  • Dynamics of Open Source Movements.
    Susan Athey, Glenn Ellison.
    Journal of Economics &amp Management Strategy. April 04, 2014
    This paper considers a dynamic model of the evolution of open‐source software projects, focusing on the evolution of quality, contributing programmers, and users who contribute customer support to other users. Programmers who have used open‐source software (OSS) are motivated by reciprocal altruism to publish their own improvements. The evolution of the open‐source project depends on the form of the altruistic benefits: in a base case the project grows to a steady‐state size from any initial condition; whereas adding a need for customer support makes zero‐quality a locally absorbing state. We also analyze competition by commercial firms with OSS projects. Optimal pricing policies again vary: in some cases the commercial firm will set low prices when the open‐source project is small; in other cases it mostly waits until the open‐source project has matured.
    April 04, 2014   doi: 10.1111/jems.12053   open full text
  • When Does a Platform Create Value by Limiting Choice?
    Ramon Casadesus‐Masanell, Hanna Hałaburda.
    Journal of Economics &amp Management Strategy. April 04, 2014
    We present a theory for why it might be rational for a platform to limit the number of applications available on it. Our model is based on the observation that even if users prefer application variety, applications often also exhibit direct network effects. When there are direct network effects, users prefer to consume the same applications to benefit from consumption complementarities. We show that the combination of preference for variety and consumption complementarities gives rise to (i) a commons problem (to better satisfy their individual preference for variety, users have an incentive to consume more applications than the number that maximizes joint utility); (ii) an equilibrium selection problem (consumption complementarities often lead to multiple equilibria, which result in different utility levels for the users); and (iii) a coordination problem (lacking perfect foresight, it is unlikely that users will end up buying the same set of applications). The analysis shows that the platform can resolve these problems and create value by limiting the number of applications available. By limiting choice, the platform may create new equilibria (including the allocation that maximizes users' utility); eliminate equilibria that give lower utility to the users; and reduce the severity of the coordination problem faced by users.
    April 04, 2014   doi: 10.1111/jems.12052   open full text
  • Delegation in Multi‐Establishment Firms: Evidence from I.T. Purchasing.
    Kristina McElheran.
    Journal of Economics &amp Management Strategy. April 04, 2014
    Recent contributions to a growing theory literature have focused on the tradeoff between adaptation and coordination in determining delegation within firms. Empirical evidence, however, is limited. Using establishment‐level data on decision rights over information technology investments, I find that a high net value of adaptation is strongly associated with delegation, as are local information advantages and firm‐wide diversification; in contrast, a high net value of within‐firm coordination is correlated with centralization. Variation across establishments within firms is widespread: most firms are neither fully centralized nor fully decentralized. Delegation patterns are largely consistent with standard team‐theory predictions; however, certain findings, such as a negative correlation between delegation and firm size, call for a consideration of agency costs as well.
    April 04, 2014   doi: 10.1111/jems.12054   open full text
  • Oligopolies with (Somewhat) Environmentally Conscious Consumers: Market Equilibrium and Regulatory Intervention.
    George Deltas, Donna Ramirez Harrington, Madhu Khanna.
    Journal of Economics &amp Management Strategy. July 10, 2013
    We consider a horizontally differentiated duopoly where consumers care about the product's “greenness.” Firms can be asymmetric: they may differ in the product's intrinsic value and may also differ in their chosen level of greenness. We examine the choice of greenness and the implications of various policy interventions. We show that (i) the choices of product greenness are strategic substitutes, (ii) the high‐intrinsic quality firm produces the greener product, (iii) the low‐quality firm's greenness may increase with the cost of its provision or decrease with consumer willingness to pay for it, (iv) a minimum quality standard (MQS) leads the greener firm to lower its environmental quality and can even reduce average quality, (v) greenness is underprovided even if consumers fully internalize the externality, and (v) an MQS can reduce welfare if the greenness of the high‐quality firm exceeds the MQS, even when environmental quality is underprovided. The effects of policy interventions on profits differ qualitatively across polices and firms: A firm that lobbies for one type of intervention may lobby against another similar one, and a firm may lobby for an intervention while its competitor may lobby against it. A subsidy for the development costs of a green product can financially hurt both firms.
    July 10, 2013   doi: 10.1111/jems.12019   open full text
  • Integration and Task Allocation: Evidence from Patient Care.
    Guy David, Evan Rawley, Daniel Polsky.
    Journal of Economics &amp Management Strategy. July 10, 2013
    Using the universe of patient transitions from inpatient hospital care to skilled nursing facilities and home health care in 2005, we show how integration eliminates task misallocation problems between organizations. We find that vertical integration allows hospitals to shift patient recovery tasks downstream to lower‐cost organizations by discharging patients earlier (and in poorer health) and increasing post‐hospitalization service intensity. Although integration facilitates a shift in the allocation of tasks and resources, health outcomes either improved or were unaffected by integration on average. The evidence suggests that integration solves coordination problems that arise in market exchange through improvements in the allocation of tasks across care settings.
    July 10, 2013   doi: 10.1111/jems.12023   open full text
  • Multidivisional Strategy and Investment Returns.
    Gabriel Natividad.
    Journal of Economics &amp Management Strategy. July 10, 2013
    This paper studies the influence of multidivisional structure on investment returns using a large database of projects in the U.S. film distribution industry, a setting in which divisionalization exists without horizontal diversification—all divisions of multidivisional distributors release feature films. The findings are consistent with a positive effect of multidivisional strategy on investment returns, even if total investment need not increase. Multidivisional strategies are more consequential for higher profitability when firms share key human talent across their divisions.
    July 10, 2013   doi: 10.1111/jems.12018   open full text
  • Product Market Competition and Returns to Talent.
    Jen Baggs, Jean‐Etienne Bettignies, John Ries.
    Journal of Economics &amp Management Strategy. July 10, 2013
    This paper investigates how product market competition influences the wages paid to workers and the distribution of talent across industries. We develop a model where firms facing different competitive conditions bid for workers. The model predicts that wages are increasing in talent, decreasing in competition, and the interaction between talent and competition is positive. In addition, the most talented workers will be concentrated in competitive industries and talent dispersion rises with competition. We use linked employee–employer data to test these predictions.
    July 10, 2013   doi: 10.1111/jems.12020   open full text
  • Unshrouding for Competitive Advantage.
    Carsten Dahremöller.
    Journal of Economics &amp Management Strategy. July 10, 2013
    In a market with hidden product details and systematic consumer biases, firms have the possibility to unshroud and thereby to rectify such market obliquities. While the classical view was that firms will have an incentive to unshroud, Gabaix and Laibson (2006) show that there exist constellations in which firms prefer to leave the market shrouded. Building on that model I introduce a more strategic and long‐term dimension of unshrouding which turns out to fundamentally alter the underlying incentives to unshroud. In particular, I show that there exists an incentive to unshroud that stems from differences in add‐on profitability and that it is dependent on parameter constellations whether a more profitable or a less profitable firm will want to unshroud.
    July 10, 2013   doi: 10.1111/jems.12025   open full text
  • Do Higher Costs Spur Process Innovations and Managerial Incentives? Evidence from a Natural Experiment.
    Benoit Dostie, Rajshri Jayaraman.
    Journal of Economics &amp Management Strategy. July 10, 2013
    This paper asks whether firms respond to cost shocks by introducing process innovations and increasing the use of managerial incentives. Using a large panel data set of workplaces in Canada, our identification strategy relies on exogenous variation in costs arising from increased border security along the 49th parallel following 9/11. Our longitudinal difference‐in‐differences estimates indicate that firms responded to the cost shock by introducing new or improved processes, but did not change their use of managerial incentives. These results suggest that the threat of bankruptcy may provide impetus for improving efficiency.
    July 10, 2013   doi: 10.1111/jems.12024   open full text
  • Product Innovation Incentives: Monopoly vs. Competition.
    Yongmin Chen, Marius Schwartz.
    Journal of Economics &amp Management Strategy. July 10, 2013
    In contrast to Arrow's result for process innovations, we show that the gain from a product innovation can be larger to a secure monopolist than to a rivalrous firm that would face competition from independent sellers of the old product. A monopolist incurs profit diversion from its old good but may gain more than a rivalrous firm on the new good by coordinating the prices. In a Hotelling framework, we find simple conditions for the monopolist's gain to be larger. We also explain why the ranking of innovation incentives differs under vertical product differentiation.
    July 10, 2013   doi: 10.1111/jems.12026   open full text
  • Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives.
    Federico Etro, Michela Cella.
    Journal of Economics &amp Management Strategy. July 10, 2013
    We analyze competition between firms engaged in R&D activities and market competition to study the choice of the incentive contracts for managers with hidden productivity. Oligopolistic screening requires extra effort/investment from the most productive managers: under additional assumptions on the hazard rate of the distribution of types we obtain no distortion in the middle rather than at the top. The equilibrium contracts are characterized by effort differentials between (any) two types always increasing with the number of firms, suggesting a positive relation between competition and high‐powered incentives. An inverted U curve between competition and absolute investments can emerge for the most productive managers.
    July 10, 2013   doi: 10.1111/jems.12021   open full text
  • One‐Stop Shopping as a Cause of Slotting Fees: A Rent‐Shifting Mechanism.
    Stéphane Caprice, Vanessa Schlippenbach.
    Journal of Economics &amp Management Strategy. July 10, 2013
    Consumers increasingly prefer to bundle their purchases into a single shopping trip, inducing complementaries between initially independent or substitutable goods. Taking this one‐stop shopping behavior into account, we show that slotting fees may emerge as a result of a rent‐shifting mechanism in a three‐party negotiation framework, where a monopolistic retailer negotiates sequentially with two suppliers about two‐part tariff contracts. If the goods are initially independent or sufficiently differentiated, the wholesale price negotiated with the first supplier is upward distorted. This allows the retailer and the first supplier to extract rent from the second supplier. To compensate the retailer for the higher wholesale price, the first supplier pays a slotting fee as long as its bargaining power vis‐à‐vis the retailer is not too large.
    July 10, 2013   doi: 10.1111/jems.12022   open full text
  • Search Quality and Revenue Cannibalization by Competing Search Engines.
    Greg Taylor.
    Journal of Economics &amp Management Strategy. July 10, 2013
    Consumers are attracted by high‐quality search results. Search engines, though, essentially compete against themselves because consumers are induced to substitute away from advertisement links when their organic counterparts are of high quality. I characterize the effect of such revenue cannibalization upon equilibrium quality when search engines compete for clicks. Cannibalization provides an incentive for quality degradation, engendering low‐quality equilibria—even when provision is costless. When consumers exhibit loyalty there is a ceiling above which result quality cannot rise, regardless of what the maximum feasible quality happens to be. Seemingly procompetitive developments may exert downward pressure on equilibrium quality.
    July 10, 2013   doi: 10.1111/jems.12027   open full text