nep-bec New Economics Papers
on Business Economics
Issue of 2019‒07‒29
nine papers chosen by
Vasileios Bougioukos
Bangor University

  1. Monopolistic competition and optimum product selection: why and how heterogeneity matters By Nocco, Antonella; Ottaviano, Gianmarco I. P.; Salto, Matteo
  2. Design and Evaluation of Product Aesthetics: A Human-Machine Hybrid Approach By Alex Burnap; John R. Hauser; Artem Timoshenko
  3. Does Electrification Cause Industrial Development? Grid Expansion and Firm Turnover in Indonesia By Dana Kassem
  4. Contracts, Firm Dynamics and Aggregate Productivity By López-Martín Bernabé; Pérez-Reyna David
  5. The effect of foreign competition on family and network labour allocation By Klymak Margaryta
  6. Digital technologies and ‘value’ capture in global value chains: Empirical evidence from Indian manufacturing firms By Banga Karishma
  7. Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry By Dennis, Patrick; Gerardi, Kristopher S.; Schenone, Carola
  8. Every Cloud has a Silver Lining: Cleansing Effects of the Portuguese Financial Crisis By Daniel A. Dias; Carlos Robalo Marques; Carlos Robalo Marques
  9. Food Fraud and Import Refusals: Assessing China’s Agri-Food Imports at the Firm Level By Xie, Chaoping; Wang, Xiaojuan; Grant, Jason; Long, Yanyu; Liu, Yifang

  1. By: Nocco, Antonella; Ottaviano, Gianmarco I. P.; Salto, Matteo
    Abstract: After some decades of relative oblivion, the interest in the optimality properties of monopolistic competition has recently re-emerged due to the availability of an appropriate and parsimonious framework to deal with firm heterogeneity. Within this framework we show that non-separable utility, variable demand elasticity and endogenous firm heterogeneity cause the market equilibrium to err in many ways, concerning the number of products, the size and the choice of producers, the overall size of the monopolistically competitive sector. More crucially with respect to the existing literature, we also show that the extent of the errors depends on the degree of firm heterogeneity. In particular, the ine¢ ciency of the market equilibrium is largest when selection among heterogenous firms is needed most, that is, when there are relatively many firms with low productivity and relatively few firms with high productivity.
    Keywords: monopolistic competition; product diversity; firm heterogene-ity; selection; welfare
    JEL: J1 L81
    Date: 2017–07–20
  2. By: Alex Burnap; John R. Hauser; Artem Timoshenko
    Abstract: Aesthetics are critically important to market acceptance in many product categories. In the automotive industry in particular, an improved aesthetic design can boost sales by 30% or more. Firms invest heavily in designing and testing new product aesthetics. A single automotive "theme clinic" costs between \$100,000 and \$1,000,000, and hundreds are conducted annually. We use machine learning to augment human judgment when designing and testing new product aesthetics. The model combines a probabilistic variational autoencoder (VAE) and adversarial components from generative adversarial networks (GAN), along with modeling assumptions that address managerial requirements for firm adoption. We train our model with data from an automotive partner-7,000 images evaluated by targeted consumers and 180,000 high-quality unrated images. Our model predicts well the appeal of new aesthetic designs-38% improvement relative to a baseline and substantial improvement over both conventional machine learning models and pretrained deep learning models. New automotive designs are generated in a controllable manner for the design team to consider, which we also empirically verify are appealing to consumers. These results, combining human and machine inputs for practical managerial usage, suggest that machine learning offers significant opportunity to augment aesthetic design.
    Date: 2019–07
  3. By: Dana Kassem
    Abstract: I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Empirical tests show that electrification creates new industrial activity, as opposed to only reorganizing industrial activity across space. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller.
    JEL: D24 L60 O13 O14 Q41
    Date: 2019–07
  4. By: López-Martín Bernabé; Pérez-Reyna David
    Abstract: We construct a framework of firm dynamics to evaluate the impact of the enforcement of contracts between final goods producers and their intermediate goods suppliers on firm growth, technology accumulation, and aggregate productivity. We build upon the static contracts model of Acemoglu et al. (2007), where the final goods firm chooses technology in contractible activities conducted by suppliers of intermediate inputs. Suppliers select investments in noncontractible activities, anticipating the payoffs that will result from bargaining with the producer of the final good. We show that contractual incompleteness implies a wedge on profits for producers of the final good, which discourages technology accumulation. Our model estimates differences in output per worker of up to 33% between economies with complete and incomplete contracts. The impact on firm growth, the age and size distribution of firms is quantitatively significant.
    Keywords: size-dependent distortions;contracts;aggregate productivity;firm dynamics
    JEL: D86 E23 O11 O40
    Date: 2019–04
  5. By: Klymak Margaryta
    Abstract: This paper examines whether foreign competition affects the reallocation of unpaid and family workers from household businesses to working outside of the family firm.Using a rich panel dataset of Vietnamese manufacturing enterprises that went through trade liberalization, I find that import competition leads to the switching of family and unpaid employees from working at the household firm to working externally.This response to heightening foreign competition is also greater for less financially stable firms, and for the households largely reliant on the income from the household firm. This finding is consistent with income diversification on the part of households who own firms threatened by import competition. We also explore heterogeneous effects among entering and exiting firms, as well as industry-switching firms.
    Keywords: unpaid labour,family workers,foreign competition,Household business
    Date: 2019
  6. By: Banga Karishma
    Abstract: This paper examines whether digitalization can be a driver of ‘upgrading’ in global value chains and help developing countries move into higher value-added activities. In particular, the paper provides empirical evidence on the impact of digital capabilities on product upgrading in Indian manufacturing firms participating in global value chains.Empirical analysis is undertaken on a panel of global value chain manufacturing firms in the period 2001–15, using the methodology of system generalized method-of-moments. Product upgrading is captured through a novel sales-weighted average product sophistication indicator at the firm level, while principal component analysis is used to construct a digital capability index that draws information on both ‘hard’ and ‘soft’ digital assets of the firm. Empirical results suggest that an increase in digital capability of the firm has a significant and positive impact on its product sophistication, other things being constant.Firms with both high levels of digital capability and share of skilled labour are observed to have roughly 4–5 per cent higher product sophistication than firms with low levels of digital capability and skills. In addition, lagged product sophistication, size, industry concentration, and to some extent R&D, are also found to have a positive and significant impact on product sophistication of Indian global value chain firms.The paper further attempts to tie these empirical results to the global value chain governance literature, and advances the nexus of governance and digitalization as a key area of global value chain research.
    Date: 2019
  7. By: Dennis, Patrick (University of Virginia); Gerardi, Kristopher S. (Federal Reserve Bank of Atlanta); Schenone, Carola (University of Virginia)
    Abstract: Institutional investors often own significant equity in firms that compete in the same product market. These "common owners" may have an incentive to coordinate the actions of firms that would otherwise be competing rivals, leading to anti-competitive pricing. This paper uses data on airline ticket prices to test whether common owners induce anti-competitive pricing behavior. We find little evidence to support such a hypothesis, and show that the positive relationship between average ticket prices and a commonly used measure of common ownership previously documented in the literature is generated by the endogenous market share component, rather than the ownership component, of the measure.
    Keywords: common ownership; airline prices; institutional ownership; competition
    JEL: G33 G34 G38 L11 L41
    Date: 2019–07–01
  8. By: Daniel A. Dias; Carlos Robalo Marques; Carlos Robalo Marques
    Keywords: Productivity, firm-level data, entry, exit, survival
    JEL: D24 E32 L25 O47
    Date: 2019–06–05
  9. By: Xie, Chaoping; Wang, Xiaojuan; Grant, Jason; Long, Yanyu; Liu, Yifang
    Keywords: Agricultural and Food Policy
    Date: 2019–06–25

This nep-bec issue is ©2019 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.