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on Business Economics |
| By: | Edward P. Lazear (Stanford University); Kathryn L. Shaw (Stanford University); Christopher T. Stanton (University of Utah) |
| Abstract: | How and by how much do supervisors enhance worker productivity? Using a company-based data set on the productivity of technology-based services workers, supervisor effects are estimated and found to be large. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. This implies that the average boss is about 1.75 times as productive as the average worker. Additionally, boss’s primary activity is teaching skills that persist. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:sip:dpaper:12-001&r=bec |
| By: | Maral Kichian |
| Abstract: | We propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth. In addition, we find that credit conditions also play a role in that relationship. In particular, there is an additional negative short-run impact of money on growth when credit is not readily available, supporting the precautionary motive for holding money. Finally, money is found to have no effect on output growth in the long-run. |
| Keywords: | Monetary aggregates; Credit and credit aggregates; Business fluctuations and cycles |
| JEL: | E44 E51 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-33&r=bec |
| By: | Finn E. Kydland; Peter Rupert; Roman Sustek |
| Abstract: | Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or lagging GDP. These observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment. Including mortgages and interest rate dynamics aligns the theory more closely with U.S. observations. Longer time to build in housing construction makes residential investment coincident with output. |
| JEL: | E22 E32 R21 R31 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18432&r=bec |
| By: | John Fernald |
| Abstract: | This paper makes four points about the recent dynamics of productivity and potential output. First, after accelerating in the mid-1990s, labor and total-factor productivity growth slowed after the early to mid 2000s. This slowdown preceded the Great Recession. Second, in contrast to some informal commentary, productivity performance during the Great Recession and early in the subsequent recovery was roughly in line with previous experience during deep recessions. In particular, the evidence suggests substantial labor and capital hoarding. During the recovery, measures of factor utilization fairly quickly rebounded, and TFP and labor productivity returned to their anemic mid-2000s trends. Third, a plausible benchmark for the slower pace of underlying technology along with demographic assumptions from the Congressional Budget Office imply steady-state GDP growth of just over 2 percent per year—lower than most estimates. Finally, during the recession and recovery, potential output grew even more slowly— reflecting especially the effect of weak investment on growth in capital input. Half or more of the shortfall of actual output relative to pre-recession estimates of the potential trend reflects a reduction in potential. |
| Keywords: | Productivity ; Business cycles ; Economic growth |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2012-18&r=bec |
| By: | Böhme, Enrico; Müller, Christopher |
| Abstract: | We analyze the optimal location choice of a monopolistic firm that operates two platforms on a two-sided market. We show that the optimal platform locations are equivalent to the one-sided benchmark if both sides are either restricted to single- or multi-homing. In the mixed case (one side single-homes, the other one multi-homes), the optimal platform locations are determined by the relative profitability of both market sides. Our results indicate that modeling mergers on two-sided markets with fixed locations is often inappropriate. |
| Keywords: | two-sided markets; location choice; monopoly; merger simulation |
| JEL: | K20 L51 L12 D42 |
| Date: | 2012–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41761&r=bec |
| By: | Constant Djama; Isabelle Martinez; Stéphanie Serve (University of Toulouse; University of Toulouse; THEMA, Universite de Cergy-Pontoise) |
| Abstract: | Relative to the decision to go public, the decision to delist is less studied in the corporate finance literature despite its importance in the life of the firm. This article surveys the recent literature, both theoretical and empirical, regarding delisting in an international context (Anglo-Saxon countries and Continental Europe). We provide a review of the growing research on delisting based on the distinction between voluntary and involuntary delistings. For voluntary delistings, also called “Going Private Transactions” (GPTs), we analyze the incentives for firms to go private and the financial characteristics of these firms. Next, we focus on involuntary delistings: why do firms undergo a delisting (violation of stock exchange requirements, poor performance) and what strategies did the managers implement to attempt to avoid delisting? Finally, we are interested in the impact of corporate governance on delisting. |
| Keywords: | delisting, going private, corporate governance |
| JEL: | G34 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2012-38&r=bec |
| By: | Chongyang Chen (University of Texas at Dallas); Zhonglan Dai (University of Texas at Dallas); Douglas A. Shackelford (University of North Carolina and NBER); Harold H. Zhang (University of Texas at Dallas) |
| Abstract: | We show that firms with the least elastic demand for equity capital should benefit the most from reductions in shareholder taxes. Consistent with this prediction, we find that, following 1997 and 2003 cuts in U.S. individual shareholder taxes, financially constrained firms, and particularly those with disproportionate ownership by U.S. individuals, enjoyed larger reductions in their cost of equity capital than did other firms. The results are consistent with the incidence of the tax reductions falling mostly on firms with the most pressing needs for capital. Furthermore, the findings provide an explanation for the heretofore puzzling finding that, following the unprecedented 2003 reduction in dividend tax rates, non-dividend-paying firms outperformed dividend-paying firms. Not surprisingly, we find that non-dividend-paying firms are more financial constrained than dividend-paying firms are. When a firm’s financial constraint and dividend choice are jointly considered, we find that the extent of financial constraint affects the change in the cost of equity capital, but whether a firm issues a dividend does not. In other words, it appears that the extant studies suffered from the omission of a correlated variation, the extent to which a firm is financially constrained. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:1202&r=bec |
| By: | Hunt, Jennifer (Rutgers University) |
| Abstract: | I use the 1993 and 2003 National Surveys of College Graduates to examine the higher exit rate of women compared to men from science and engineering relative to other fields. I find that the higher relative exit rate is driven by engineering rather than science, and show that 60% of the gap can be explained by the relatively greater exit rate from engineering of women dissatisfied with pay and promotion opportunities. I find that family-related constraints and dissatisfaction with working conditions are only secondary factors. The relative exit rate by gender from engineering does not differ from that of other fields once women's relatively high exit rates from male fields generally are taken into account. |
| Keywords: | science and engineering workforce, gender |
| JEL: | J16 J44 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6885&r=bec |
| By: | Roberto Basile; Sergio de Nardis; Carmine Pappalardo |
| Abstract: | This study represents a first attempt to empirically analyze the role of firm heterogeneity in regional business cycle behaviour. Working with monthly Italy’s firms data and estimating a random effects ordered probit model, we first document sizable asymmetries in Northern and Southern firms business cycles positively related to the intensity of the national cycle: firms located in the South are more likely to reduce production levels than firms located in the North in periods of business cycle expansion and viceversa. Then, we explore the role of sectoral mix and several firm-specific factors (firm size, export propensity, liquidity constraints, demand conditions, capacity utilization and expectations) in explaining regional disparities in business cycle fluctuations. Results suggest that North-South differences in sectoral composition do not help explain the diverging behaviour of Southern firms, while by controlling for firm heterogeneity we are able to capture large part of regional business cycles differences. JEL codes: D21, E32, R10 Keywords: Regional business cycle, firm heterogeneity, random effects ordered probit |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa12p84&r=bec |
| By: | Rolf Golombek and Arvid Raknerud (Statistics Norway) |
| Abstract: | While little attention has been paid to the role of profitability in the empirical literature on firm exit, we employ a detailed recently established database of Norwegian manufacturing firms to identify the extent to which profitability explains a firm's exit behavior. Some key characteristics of the data are: i) 25 percent of firms that exited experienced positive profits every year before exit, ii) there is no negative profitability shock immediately prior to exit, and iii) firms may continue production, even though they frequently experience negative profits. We use these data to estimate a theory-founded econometric model of exit, where the exit and investment decisions of firms are formulated as the solution to a discrete-continuous dynamic programming problem. In particular, the probability of exit depends on profitability, which is not directly observable to the econometrician. We estimate this model for six manufacturing industries and find that increased profitability lowers the probability of exit and that this effect is statistically significant in all industries. We show that the difference in annual exit probability between firms that exited during the observation period (1994–2009) and firms that did not exit is highly persistent over time, and there is no tendency for a sharp increase in the estimated exit probability just prior to exit. Hence, it is the cumulative effect of the higher risk of exit over several years, compared with the average firm, that causes firms to exit. |
| Keywords: | Exit; investments; entrepreneurship; continuous-discrete choice; monopolistic competition; manufacturing firms; policy simulation; ownership structure; wage raise. |
| JEL: | C33 C51 C61 C72 D21 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:706&r=bec |
| By: | Carlos Carreira (GEMF and Faculty of Economics, University of Coimbra); Filipe Silva (GEMF and Faculty of Economics, University of Coimbra) |
| Abstract: | Recessions and financial crisis increase financial constraints and disproportionally affect constrained firms. This paper investigates the differences in firms’ financial constraints between sectors using a cash to cash-flow rationale (Almeida et al., 2004) and a firm specific index of constraints (Hovakimien and Hovakimien, 2009). Interpreting higher sensitivities of cash to cash flow as evidence of higher constraints, we find that the relationships between firm size, firm age and constraints are, in general, non-monotonic and not robust to economic sector disaggregation, which contrasts with previous findings. |
| Keywords: | Financial constraints; Financial crises; Firm size; Firm age; Firm-level studies; Portugal. |
| JEL: | D92 G32 L00 L2 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2012-12&r=bec |
| By: | Andreas Koch; Elena Biewen |
| Abstract: | The present paper analyses whether and how the affiliation of a firm to a business group affects its productivity. Based on novel data consisting of official firm data from the German Business Register including ownership information from Bureau van Dijk’s MARKUS database and from the Cost Structure Panel we assess differences in productivity (1) between independent firms and firms affiliated to groups and (2) affiliated firms controlled by German owners and affiliated firms controlled by foreign owners. Controlling for a series of determinants like, for example, the internal diversity of firms and groups, region, sector and size of firms, it is shown that group members have a productivity premium between 6 and 28% depending on the considered subsample. Furthermore, affiliates under foreign control are more productive than firms controlled by domestic owners. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwrsa:ersa12p795&r=bec |
| By: | Fonseca, Miguel A.; Normann, Hans-Theo |
| Abstract: | We conduct experiments testing the relationship between excess capacity and pricing in repeated Bertrand-Edgeworth duopolies and triopolies. We systematically vary the experimental markets between low excess capacity (suggesting monopoly) and no capacity constraints (suggesting perfect competition). Controlling for the number of firms, higher production capacity leads to lower prices. However, the decline in prices as industry capacity rises is less pronounced than predicted by Nash equilibrium, and a model of myopic price adjustments has greater predictive power. With higher capacities, Edgeworth-cycle behavior becomes less pronounced, causing lower prices. Evidence for tacit collusion is limited and restricted to low-capacity duopolies. -- |
| Keywords: | tacit collusion,excess capacity,Edgeworth cycles |
| JEL: | C72 C90 D43 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:67&r=bec |
| By: | William Dunkelberg (Department of Economics, Temple University); Carmen Moore (Department of Business Administration, Morgan State University); Jonathan Scott (Department of Finance, Temple University); William Stull (Department of Economics, Temple University) |
| Abstract: | This paper focuses on how entrepreneurial goals affect the resource allocation of new firm owners. It connects research in psychology and management that examines the core motivations of entrepreneurs with research in economics that models the behavior of owner-managers as utility-maximizing rather than profit-maximizing. We hypothesize that new owners with nonmonetary goals allocate their resources differently than do owners with monetary goals and that the differences are meaningful in size. To test these hypotheses, we estimate firm level equations based on economic theories of factor demand that show how input quantities depend on owner goals. Data come from a national survey of new U.S. business owners. We find owner goals have both a statistically and substantively significant effect on resource allocation for new firms. Owners with nonmonetary goals put in more of their own and family hours rather than hiring outside employees. Implications for research and policy are discussed. |
| Keywords: | Entrepreneurship, Small Business, New Firms, Owner Goals, Resource Allocation |
| JEL: | L26 M12 M14 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1203&r=bec |
| By: | Baltzopoulos, Apostolos (The Nordic Centre for Spatial Development); Braunerhjelm, Pontus (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Tikoudis, Ioannis (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | The extent and importance of spin-offs for industrial dynamics have been analysed in a number of previous studies, yet knowledge is surprisingly scarce about the determinants that trigger such entrepreneurial ventures. In the current analysis we use unique and detailed Swedish data to comprehensively explore how individual, firm, regional, and industry variables influence spin-offs during 1999-2005. In addition to the expected general positive impact of regional size and entrepreneurial culture, we find specific features for knowledge intensive manufacturing and service production on the propensity of employees to spin off a new venture. Moreover, we use an entropy measure to disentangle unrelated and related variety, and find that the former has a significantly negative impact while the latter a significantly positive effect on the propensity of the individual to start a spin-off. |
| Keywords: | Spin-offs; entrepreneurship; industries; regions |
| JEL: | D01 O12 O18 R10 |
| Date: | 2012–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0265&r=bec |
| By: | Mark Armstrong |
| Abstract: | This paper discusses the incentive to bundle when consumer valuations are non-additive and/or when products are supplied by separate sellers. Whether integrated or separate, a firm has an incentive to introduce a bundle discount when demand for the bundle is more elastic than the overall demand for products. When separate sellers coordinate on a bundle discount, they can use the discount to relax competition, which can harm welfare. |
| Keywords: | Price discrimination, Bundling, Discrete choice, Oligopoly, Common agency |
| JEL: | D11 D43 D82 D86 L13 L41 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:624&r=bec |
| By: | Byung-Cheol Kim (School of Economics, Georgia Institute of Technology); Jeongsik "Jay" Lee (Scheller College of Business, Georgia Institute of Business); Hyunwoo Park (School of Industrial and System Engineering) |
| Abstract: | We empirically investigate the platform competition in the online daily deals promotion market that is characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between merchants and consumers. We find that deals offered through Groupon, the incumbent, sell more and generate higher revenues than those offered by LivingSocial, the entrant. We show that the greater network size in the consumer side entirely explains the incumbent's lead in the merchant side performance, indicating the existence of cross-side network effects at the aggregated market level. However, this performance advantage is dampened by the entrant's competitive chasing at local markets through offers of greater discounts and lower prices. Moreover, the incumbent advantage quickly attenuates as the merchants repeat promotions over time. These countering forces appear to prevent this market from achieving a tipping equilibrium. Our findings thus help explain why different market structures arise in two-sided markets with network externalities. |
| Keywords: | two-sided market, platform competition, cross-side network effects, online daily deals, reputation effect |
| JEL: | D40 L10 M20 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1204&r=bec |
| By: | A. Kerem Cosar (The University of Chicago Booth School of Business); Paul L. E. Grieco (The Pennsylvania State University); Felix Tintelnot (The Pennsylvania State University) |
| Abstract: | Using a micro-level dataset of wind turbine installations in Denmark and Germany, we estimate a structural oligopoly model with cross-border trade and heterogeneous firms. Our approach separately identifies border-related from distance-related variable costs and bounds the fixed cost of exporting for each firm. Variable border costs are large: equivalent to roughly 400 kilometers (250 miles) in distance costs, which represents 40 to 50 percent of the average exporter's total delivery costs. Fixed costs are also important; removing them would increase German firms' market share in Denmark by 10 percentage points. Counterfactual analysis indicates that completely eliminating border frictions would increase total welfare in the wind turbine industry by 5 percent in Denmark and 10 percent in Germany. |
| Keywords: | Trade costs, oligopoly, spatial competition, constrained MLE. |
| JEL: | F14 L11 L20 L60 R12 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1228&r=bec |
| By: | Hentschel, Sandra (University of Bielefeld); Muehlheusser, Gerd (University of Hamburg); Sliwka, Dirk (University of Cologne) |
| Abstract: | When a key responsibility of a manager is to allocate more or less attractive tasks to subordinates, these subordinates have an incentive to work hard and demonstrate their talents. As a new manager is less well acquainted with these talents this incentive mechanism is reinvigorated after a management change – but only when the team is sufficiently homogenous. Otherwise, a new manager quickly makes similar choices as the old one did. We investigate this hypothesis using a large data set on coach dismissals in the German football league where the selection of players is indeed a key task of the coach. Indeed, we find substantial evidence that coach replacements enhance team performance (only) in homogenous teams. Moreover, from a methodological point of view, we argue that there is typically a negative selection bias when evaluating succession effects, which might reconcile previous findings of no (or even negative) effects with the vast number of dismissals observed in reality. |
| Keywords: | managerial succession, teams, heterogeneity, tournaments |
| JEL: | D22 J44 J63 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6884&r=bec |
| By: | Jennifer Hunt |
| Abstract: | After describing qualitatively the increasingly flexible organization of work hours in Germany, I turn to the German Socio-Economic Panel to quantify practices and trends, and assess their effects on workers and employers. Measuring flexibility as the extent to which overtime is compensated with time off, and hence receives no overtime premium, I show that hourly{paid workers have undergone a regime shift towards more flexibility since 1984, while salaried workers have maintained an already high level of flexibility. I find weak evidence that flexibility causes workers to be slightly less satisfied with their work and more satisfied with their leisure. Over the boom and bust cycle of 2004-2009, I find that for hourly-paid workers in manufacturing, paid and unpaid overtime hours were equally cyclical, but that the cycle for unpaid overtime led the cycle for paid overtime. The results suggest that while the new practices do free employers to make more cyclical adjustments in hours, they have not eliminated the need for adjustments in paid overtime. I identify as constraints ceilings on cumulated overtime hours to be compensated with time off and the window within which the compensation in time off must occur. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp489&r=bec |
| By: | Dana Andersen; Ramón López |
| Abstract: | This paper seeks to understand the role of tax policy in executive rent-seeking within the firm and income. While a longstanding literature maintains that executives are afforded discretion in obtaining rents, that the degree of exercising this discretion is influenced by tax policy is, however, not considered in the analysis of tax policy. We propose a simple model of executive pay, where executive effort (all value-creating activities) and rent-seeking (all value-diverting activities) are determined endogenously. The model shows that, under some conditions, rent-seeking, as well as effort, responds to changes in marginal tax rates. Moreover, (1) a positive association between the elasticity of taxable income with respect to the tax policy and the degree in which the internal institutions of the firm favor executives vis-à-vis shareholders, and (2) a negative association between the elasticity of taxable income and the executive's equity-at-stake, are manifestations of tax policy influencing rent-seeking. We empirically test these implications and find results that are consistent with the predictions of the model. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp360&r=bec |
| By: | Werner Hölzl (WIFO) |
| Abstract: | This paper studies the influence of mobility barriers on industry evolution using the stylised pure selection model developed by Metcalfe. It is shown that mobility barriers influence industry dynamics by reducing the speed of competitive selection. Based on the theoretical model, we argue that mobility barriers should lead to a reduction of market share reallocation dynamics in models that use replicator dynamics. We then test this prediction empirically, finding that industries with high mobility barriers have a larger share of stable firms that grow or decline only marginally, compared to industries with low mobility barriers. This has important implications for the interpretation of productivity decompositions. Our empirical results show that higher mobility barriers result in a lower contribution of reallocation to aggregate productivity growth in Austrian manufacturing industries. |
| Keywords: | Intensity of competition, mobility barriers, sunk costs, selection dynamics, firm growth, reallocation |
| Date: | 2012–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2012:i:437&r=bec |
| By: | Helmut M. Dietl (Department of Business Administration (IBW), University of Zurich); Martin Grossmann (Department of Business Administration (IBW), University of Zurich); Markus Lang (Department of Business Administration (IBW), University of Zurich); Simon Wey (Department of Business Administration (IBW), University of Zurich) |
| Abstract: | Several countries have implemented bonus taxes for corporate executives in response to the financial crisis of 2007-2010. Using a principal-agent model, this paper investigates the incentive effects of bonus taxes by analyzing the agent's and principal's behavior. Specifically, we show how bonus taxes affect the agent's incentives to exert effort and the principal's decision regarding the composition of the compensation package (fixed salary and bonus rate). We find that, surprisingly, a bonus tax can increase the bonus rate and decrease the fixed salary. In addition, a bonus tax can induce the principal to pay higher bonuses even though the agent's effort always decreases. |
| Keywords: | Principal-agent model, bonus tax, executive compensation, incentive, pay regulation |
| JEL: | H24 J30 M52 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:zrh:wpaper:313&r=bec |
| By: | Riener, Gerhard; Wiederhold, Simon |
| Abstract: | This paper investigates the interaction of intrinsic and extrinsic incentives. We propose a simple principal-agent model with control that incorporates the existence of social groups resulting from common experiences in the past. Our laboratory experiment shows that agents with previous common experiences with their principals (CE agents) perform better than agents without such experiences (NCE agents). However, as soon as actual control exceeds their expectation, CE agents decrease their performance substantially, which has no equivalent for NCE agents. This pronounced decrease in effort when control is perceived as excessive represents a novel channel through which hidden costs of control materialize. Our results have important implications for firms' strategies to motivate employees. -- |
| Keywords: | Employee motivation,Principal-agent theory,Experiments |
| JEL: | C92 M54 D03 J22 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:66&r=bec |
| By: | Bick, Alexander; Choi, Sekyu |
| Abstract: | Although the link between household size and consumption has a strong empirical support, there is no consistent way in which demographics are dealt with in standard life-cycle models. We study the relationship between the predictions of the Single Agent model (the standard in the literature) versus a simple model extension where deterministic changes in household size and composition affect optimal consumption decisions. We provide theoretical results comparing both approaches and quantify the differences in predictions across models. |
| Keywords: | Consumption; Life-Cycle Models |
| JEL: | D12 J10 D91 E21 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41756&r=bec |
| By: | Yabing Jiang (Lutgert College of Business, Florida Gulf Coast University); Hong Guo (Mendoza College of Business, University of Notre Dame) |
| Abstract: | Consumer review systems have become an important marketing communication tool through which consumers share and learn product information. Although there is abundant evidence that consumer reviews have significant impact on consumer purchasing decisions, the design of consumer review systems and its impact on review outcomes and product sales have not yet been well examined. This paper analyzes firms’ review system design and product pricing strategies. We formally model two design features of consumer review systems – rating scale and disclosure of specific product attribute information. We show that firms’ optimal strategies critically depend on contextual characteristics such as product quality, product popularity, and consumer misfit cost. Our results suggest that firms should choose a low rating scale for niche products and a high rating scale for popular products. Firms should disclose specific product attribute information to attract the desired consumer segment when product quality is low relative to misfit cost, and the resulting optimal size of the targeted consumer market increases in product popularity and product quality. Different pricing strategies should be deployed during the initial sale period for different product types. For niche products, firms are advised to adopt lower-bound pricing for high-quality products to take advantage of the positive word of mouth. For popular products, firms are advised to adopt upper-bound pricing for high-quality products to enjoy the direct profit from the initial sale period, even after taking into account the negative impact of high price on consumer reviews. |
| Keywords: | economic modeling, e-commerce, consumer reviews, online word of mouth, product uncertainty |
| JEL: | D42 L86 M15 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:1210&r=bec |
| By: | Ehab A. Yaseen (Faculty of Management Technology, The German University in Cairo); Sameh N. Mohamed (Faculty of Management Technology, The German University in Cairo) |
| Abstract: | The increasing dynamics and complexity of today’s supply chains resulted in the need to select from a wide variety of the developed supply chain approaches. In this paper, a business case study is conducted to answer the research question: “How can the agility best fit within the supply chain strategies?” This research contributes to the literature by developing the DESC (differentiated enlightened supply chain) framework that consolidates necessary analysis in order to discover the scope and priorities of the supply chain from multiple perspectives. It is a guideline for the enlightened differentiated supply chain management. Through this, every different supply chain is managed differently to serve for different order winning criteria that are considered from multiple perspectives. It was concluded that in such significant and rapid changes in the requirements of different products and markets, differentiation is the clue to satisfy customer requirements and firms’ competitive position. Different priorities are to be managed differently. Also, the research concluded that postponement strategies are highly recommended for firms in competitive environments with high market dynamics. |
| Keywords: | Supply chain strategies, agile supply chain, lean supply chain, decoupling point, differentiated enlightened supply chain |
| JEL: | M11 L68 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:guc:wpaper:32&r=bec |