nep-bec New Economics Papers
on Business Economics
Issue of 2012‒07‒14
eighteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Firm Dynamics: Employment Dynamics Arising from Firm Growth and Contraction in Canada, 2001 to 2009 By Rollin, Anne-Marie
  2. Bargaining, vertical mergers and entry By Sapi, Geza
  3. Managing Licensing in a Market for Technology By Ashish Arora; Andrea Fosfuri; Thomas Roende
  4. A Model of corporate donations to open source under hardware–software complementarity By Di Gaetano, Luigi
  5. CEO pay and the market for CEOs By Antonio Falato; Dan Li; Todd Milbourn
  6. Optimal Compensation Structure in Consumer Cooperatives under Mixed Oligopoly By Michael Kopel; Marco A. Marini
  7. A Theory of Corporate Boards and Forced CEO Turnover By Thomas J. Chemmanur; Viktar Fedaseyeu
  8. Time-varying oil price volatility and macroeconomic aggregates By Michael Plante; Nora Traum
  9. Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conduct Parameters in the Airline Industry. By Ciliberto, Federico; Williams, Jonathan W
  10. Incomplete Contracts and Firm Boundaries: New Directions By Dessein, Wouter
  11. The Long Persistence of Regional Entrepreneurship Culture: Germany 1925-2005 By Michael Fritsch; Michael Wyrwich
  12. Family Firm Internationalization: Influence of Familiness on the Spanish Firm Export Activity By Fernando Merino, Joaquín Monreal-Pérez, Gregorio Sánchez-Marín
  13. Extra Status and Extra Stress: Are Promotions Good for Us? By Johnston, David W.; Lee, Wang-Sheng
  14. A Detailed Analysis of Nova Soctia;s Productivty Performance, 1997-2010 By Andrew Sharpe; Ricardo de Avillez
  15. Markov-switching dynamic factor models in real time By Maximo Camacho; Gabriel Perez-Quiros; Pilar Poncela
  16. Relocation, mobility and migration: the dynamics of workers and firms in the Netherlands. By Kronenberg, Kristin
  17. Targeted pricing and customer data sharing among rivals By Jentzsch, Nicola; Sapi, Geza; Suleymanova, Irina
  18. Company heterogeneity and mark-up variability By Saara Tamminen; Chang Han-Hsin

  1. By: Rollin, Anne-Marie
    Abstract: This paper looks at annual changes in Canadian business sector employment from 2001 to 2009. This period encompasses an expansionary phase (2001 to 2008), followed by a recession (2008/2009). Firm-level data are used to decompose yearly net employment change into gross employment creation and destruction, which makes it possible to measure the size of total annual employment reallocation. These measures of employment turnover are compared across industries and firm size classes.
    Keywords: Business performance and ownership, Business adaptation and adjustment, Entry, exit, mergers and growth, Small and medium-sized businesses
    Date: 2012–06–27
  2. By: Sapi, Geza
    Abstract: This paper analyzes vertical integration incentives in a bilaterally duopolistic industry where upstream producers bargain with downstream retailers on terms of supply. In the applied framework integration does not affect the total output produced, but it affects the distribution of rents among players. Vertical integration incentives depend on the strength of substitutability or complementarity between products and the shape of the unit cost function. I demonstrate furthermore that in contrast to the widely prevailing view in competition policy, vertical integration can under particular circumstances convey more bargaining power to the merged entity than a horizontal merger to monopoly. The model is applied to analyze strategic merger incentives to influence entry decisions. Mergers can facilitate and deter entry. While horizontal mergers to deter entry are never profitable, firms on different market levels may strategically choose to integrate vertically to keep a potential entrant out of the market. I provide conditions for such entry-deterring vertical mergers to occur. --
    Keywords: Bargaining,Vertical Mergers,Entry
    JEL: L13 L22 L42
    Date: 2012
  3. By: Ashish Arora; Andrea Fosfuri; Thomas Roende
    Abstract: Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization—where the business unit using the technology makes licensing decisions—to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing.
    JEL: L2 L24 O32
    Date: 2012–07
  4. By: Di Gaetano, Luigi
    Abstract: In recent years there has been an increasing diffusion of open source projects, as well as an increasing interest among scholars on the topic. Open source software (OSS) is developed by communities of programmers and users, usually sponsored by private firms; OSS is available in the public domain and redistributed for free. In this paper a model of open and closed source software (CSS) competition will be presented. Hardware and software are complement goods and OSS is financed by hardware firms. There is a differentiated oligopoly of hardware–software bundles, in which firms compete in prices. Results are several; positive (hardware firm) contributions are possible, although, they are not socially optimal. OSS availability has a positive impact on social welfare, and on hardware firms’ profits and prices. CSS firm’s price and profits decrease when OSS is available. The effect on the price of the hardware–CSS bundle depends on demand own–price elasticity. The model can explain the increasing participation in open source projects of embedded device producers. Hardware firms’ incentives to contribute to OSS development process are greater when there is a relatively intensive competition among producers. Hardware firms use OSS to decrease the software monopolist’s market power.
    Keywords: Open source; software markets; differentiated oligopoly; complement goods
    JEL: D21 L11 L17 D43
    Date: 2012–07–04
  5. By: Antonio Falato; Dan Li; Todd Milbourn
    Abstract: Competitive sorting models of the CEO labor market (e.g., Edmans, Gabaix and Landier (2009)) predict that differences in CEO productive abilities, or "talent", should be an important determinant of CEO pay. However, measuring CEO talent empirically represents a major challenge. In this paper, we document reliable evidence of pay for CEO credentials and argue that the evidence is consistent with models of the CEO labor market. Our main finding is that boards' compensation decisions reward several reputational, career, and educational credentials of CEOs, with newly-appointed CEOs earning a 5 percent ($280,000) total pay premium for each decile improvement in the distribution of these credentials. Consistent with boards using credentials as publicly-observable signals of CEO abilities, we show that pay for credentials displays key cross-sectional features predicted by theory, such as convexity in credentials and complementarity with firm size. Our main finding is robust to a battery of identification tests that address selectivity and endogeneity concerns, including instrumental variables estimates and controlling for firm and CEO fixed effects. We also show that credentials capture variation in CEO human capital that is different from lifetime work experience, and are positively related to long-term firm performance and board monitoring, which helps to distinguish our results from alternative stories based on CEO general human capital, hype, and entrenchment. Overall, our findings suggest that sorting considerations in the CEO labor market are an important determinant of CEO pay. Our results also suggest that the rise in CEO pay over the last decades may owe at least in part to a rise in the CEO talent premium.
    Date: 2012
  6. By: Michael Kopel (Institute of Organization and Economics of Institutions, University of Graz); Marco A. Marini (Department of Computer, Control and Management Engineering, Sapienza Università di Roma)
    Abstract: The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profitmaximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers’ preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.
    Date: 2012
  7. By: Thomas J. Chemmanur; Viktar Fedaseyeu
    Abstract: We develop a theory of corporate boards and their role in forcing CEO turnover. We consider a firm with an incumbent CEO of uncertain management ability and a board consisting of a number of directors whose role is to evaluate the CEO and fire her if a better replacement can be found. Each board member receives an independent private signal about the CEO's ability, after which board members vote on firing the CEO (or not). If the CEO is fired, the board hires a new CEO from the pool of candidates available. The true ability of the rm's CEO is revealed in the long run; the firm's long-run share price is determined by this ability. Each board member owns some equity in the firm, and thus prefers to fire a CEO of poor ability. However, if a board member votes to fire the incumbent CEO but the number of other board members also voting to fire her is not enough to successfully oust her, the CEO can impose significant costs of dissent on him. In this setting, we show that the board faces a coordination problem, leading it to retain an incompetent CEO even when a majority of board members receive private signals indicating that she is of poor quality. We solve for the optimal board size, and show that it depends on various board and rm characteristics: one size does not fit all firms. We develop extensions to our basic model to analyze the optimal composition of the board between firm insiders and outsiders and the effect of board members observing imprecise public signals in addition to their private signals on board decision-making. Finally, we develop a dynamic extension to our basic model to analyze why many boards do not fire CEOs even when they preside over a signicant, publicly observable, reduction in shareholder wealth over a long period of time. We use this dynamic model to distinguish between the characteristics of such boards from those that fire bad CEOs proactively, before significant shareholder wealth reductions take place.
    Date: 2012
  8. By: Michael Plante; Nora Traum
    Abstract: We illustrate the theoretical relation among output, consumption, investment, and oil price volatility in a real business-cycle model. The model incorporates demand for oil by a firm, as an intermediate input, and by a household, used in conjunction with a durable good. We estimate a stochastic volatility process for the real price of oil over the period 1986–2011 and utilize the estimated process in a nonlinear approximation of the model. For realistic calibrations, an increase in oil price volatility produces a temporary decrease in durable spending, while precautionary savings motives lead investment and real GDP to rise. Irreversible capital and durable investment decisions do not overturn this result.
    Keywords: Time-series analysis ; Consumption (Economics) ; Capital investments ; Natural resources ; Energy consumption
    Date: 2012
  9. By: Ciliberto, Federico; Williams, Jonathan W
    Abstract: We show that multimarket contact facilitates tacit collusion in the US airline industry using two complementary approaches. First, we show that the more extensive is the overlap in the markets that the two firms serve, i) the more firms internalize the effect of their pricing decisions on the profit of their competitors by reducing the discrepancy in their prices, and ii) the greater the rigidity of prices over time. Next, we develop a flexible model of oligopolistic behavior, where conduct parameters are modeled as functions of multimarket contact. We find i) carriers with little multimarket contact do not cooperate in setting fares, while carriers serving many markets simultaneously sustain almost perfect coordination; ii) cross-price elasticities play a crucial role in determining the impact of multimarket contact on collusive behavior and equilibrium fares; iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; iv) assuming that firms behave as Bertrand-Nash competitors leads to biased estimates of marginal costs.
    Keywords: Airline Industry; Airport Facilities; Collusion; Differentiated Products; Multi-Market Contact; Price Rigidity.; Screening Test
    JEL: L13
    Date: 2012–06
  10. By: Dessein, Wouter
    Abstract: The seminal work by Grossman and Hart (1986) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in providing incentives. In this essay, I discuss some new directions that the literature has taken since. As a central challenge, I identify the need to provide a formal theory of the firm in which managerial direction and bureaucratic decision-making play a key role. Merging a number of existing incomplete contracting models, I propose two approaches with very different contracting assumptions. As in transaction cost economics, a central element in those theories is the presence of a central office who directs and coordinates the actions of subordinates. More novel, I highlight the superior ability of non-integrated firms to adapt to a changing environment.
    Keywords: Adaptation; Coordination; Firm Boundaries; Incomplete contracts; Managerial direction
    JEL: D23 D83 L23
    Date: 2012–06
  11. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Michael Wyrwich (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: We investigate the persistence of levels of self-employment and new business formation in different time periods and under different framework conditions. The analysis shows that high levels of regional self-employment and new business formation tend to be persistent for periods as long as 80 years and that such an entrepreneurial culture can even survive abrupt and drastic changes in the politic-economic environment. We thus conclude that regional entrepreneurship cultures do exist and that they have long-lasting effects.
    Keywords: Entrepreneurship, self-employment, new business formation, persistence, culture
    JEL: L26 R11 O11
    Date: 2012–07–04
  12. By: Fernando Merino, Joaquín Monreal-Pérez, Gregorio Sánchez-Marín
    Abstract: This paper studies the determinants of the export activity of family SMEs, disentangling the three main dimensions that comprise the concept of familiness: power, experience, and culture. The results, using the F-PEC scale over a sample of 500 Spanish SMEs, show that this approach identifies the determinants that explain the export activity of family SMEs better than a simple dichotomous approach. Specifically, we find that the expertise transmitted from different generations and the family culture orientation to the firm positively affect the international activities of family SMEs; however, the composition of the firm control–management does not have any significant influence on internationalization
    Keywords: Family SMEs, export activity, Familiness, Spanish firms, F-PEC scale
    JEL: D22 M16
    Date: 2012–04
  13. By: Johnston, David W. (Monash University); Lee, Wang-Sheng (Deakin University)
    Abstract: Promotions ordinarily involve higher wages and greater privileges; but they also often involve increased responsibility, accountability and work hours. Therefore, whether promotions are good for workers' wellbeing is an empirical question. Using high-quality panel data we estimate pre- and post-promotion effects on job attributes, physical health, mental health and life satisfaction, in an attempt at answering this question. We find that promotions substantially improve job security, pay perceptions and overall job satisfaction in the short term, and that promotions have short and longer term effects on job control, job stress, income and hours worked. However, despite these large effects on job attributes, we find that promotions have negligible effects on workers' health and happiness. Only mental health seems affected, with estimates suggesting significant deterioration two years after receiving a promotion. Thus, it seems the additional stress involved with promotions eventually outweighs the additional status, at least for the average worker.
    Keywords: promotion, status, stress, job satisfaction
    JEL: I0 I31 J62
    Date: 2012–06
  14. By: Andrew Sharpe; Ricardo de Avillez
    Abstract: Despite labour productivity growth somewhat above the national average over the 1997-2000 period, Nova Scotia’s level of business sector output per hour in 2010 was only 75.7 per cent that of Canada. This report provides a detailed analysis of Nova Scotia’s labour and capital productivity performance and the factors behind this performance. It identifies weak machinery and equipment investment and low levels of business R&D as the two factors most responsible for the province’s productivity gap.
    Date: 2012–05
  15. By: Maximo Camacho (Universidad de Murcia); Gabriel Perez-Quiros (Banco de España and CEPR); Pilar Poncela (Universidad Autónoma de Madrid)
    Abstract: We extend the Markov-switching dynamic factor model to account for some of the specifi cities of the day-to-day monitoring of economic developments from macroeconomic indicators, such as ragged edges and mixed frequencies. We examine the theoretical benefi ts of this extension and corroborate the results through several Monte Carlo simulations. Finally, we assess its empirical reliability to compute real-time inferences of the US business cycle.
    Keywords: Business cycles, output growth, time series
    JEL: E32 C22 E27
    Date: 2012–02
  16. By: Kronenberg, Kristin (Maastricht University)
    Date: 2012
  17. By: Jentzsch, Nicola; Sapi, Geza; Suleymanova, Irina
    Abstract: It is increasingly observable that competitors in different industries share customer data, which can be used for targeted pricing. We propose a modified Hotelling model with two-dimensional consumer heterogeneity to analyze the incentives for such sharing and its ensuing welfare effects. We show that these incentives depend on the type of customer data and on consumer heterogeneity in the strength of brand preferences. Only data on consumer transportation cost parameters is shared. The incentives to do so are stronger if consumers are relatively homogeneous. Customer data sharing is most likely to be detrimental to consumer surplus, while the effect on social welfare can be positive. --
    Keywords: Customer Data Sharing,Price Discrimination
    JEL: D43 L13 L15 O30
    Date: 2012
  18. By: Saara Tamminen; Chang Han-Hsin
    Abstract: Mark-ups are often assumed to be constant for all firms within a sector in theoretical models. This paper reflects empirically on the distributions of companies mark-ups in order to test this assumption. We use exhaustive, Finnish company level micro-data to calculate the mark-up for each firm. The dataset covers 70 sectors from both the manufacturing and services sectors for the years 2005 to 2009. The wide variation of mark-ups found in some sectors suggests that assuming a constant mark-up estimate for all firms in the same sector is inappropriate. Our results indicate 16 out of 28 manufacturing and 31 out of 42 services sectors to support the heterogeneous mark-up assumption. We compare explicitly the mark-up distributions between companies of different size and exporting status. We find that small companies place on average higher mark-ups than large companies and domestic companies place higher mark-ups than exporting companies. Last, we characterize the sectors in which the assumption of homogenous mark-ups is to some extent justified. The results suggest that mark-up heterogeneity is greater in sectors with a low capital-labour ratio and high number of companies. Overall, mark-up heterogeneity is not prevalent only in few specific types of sectors, but seems like a wider phenomenon.
    Keywords: Mark-up, company heterogeneity, nonparametric methods
    JEL: F23 L11 C14
    Date: 2012–07–03

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