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on Business Economics |
| By: | Timothy Kehoe (University of Minnesota); Kim Ruhl (University of Wisconsin); Pau Pujolas (McMaster University) |
| Abstract: | We develop a family of simple algoirthms for analytically calculating the interior equilibria of international trade models with monopolistic competition, heterogeneous firms, increasing returns to scale, and a homogeneous outside good. Variants of the methods handle models with costly entry and models with a fixed number of firms, even when countries are of different sizes, firms face heterogeneous fixed costs, and trade costs and the distributions of firm efficiency are different across countries. The methods reduce to inverting an n-by-n matrix, where n is the number of countries. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:436&r=all |
| By: | Kenjiro Hirata (Faculty of Economics, Kobe International University); Ayako Suzuki (School of International Liberal Studies, Waseda University); Katsuya Takii (Osaka School of International Public Policy, Osaka University) |
| Abstract: | This paper investigates the transferability of managerial experience by examining how managers' tenures in target firms influence their probability of retention as board members after mergers or acquisitions in Japanese firms. It develops a general equilibrium model that distinguishes several hypotheses on managerial experiences based on the coefficients of tenure on separation, given several data limitations. In particular, the paper provides a novel method to correct for selection biases by utilizing the timing of selection in a selected sample, which does not require a random sample from the population. Our results suggest that Japanese firms value both target firm-specific and general human capital after M&As and that experience as an employee increases firm-specific skills, but at the expense of the accumulation of general skills. However, experience as a board member does not have this effect. |
| Keywords: | Tenure; Managerial Skill; Managerial Turnover after M&As; Selection Bias; Cox Proportional Hazards Model |
| JEL: | G34 J41 J63 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:19e010&r=all |
| By: | Yiquan Gu; Leonardo Madio; Carlo Reggiani |
| Abstract: | The unprecedented access of firms to consumer level data not only facilitates more precisely targeted individual pricing but also alters firms’ strategic incentives. We show that exclusive access to a list of consumers can provide incentives for a firm to endogenously assume the price leader’s role, and so to strategically manipulate its rival’s price. Prices and profits are non-monotonic in the length of the consumer list. For an intermediate size, price leadership entails a semi-collusive outcome, characterized by supra-competitive prices and low consumer surplus. In contrast, for short or long lists of consumers, exclusive data availability intensifies market competition. |
| Keywords: | exclusive data, price leadership, personalized pricing, price discrimination |
| JEL: | D43 K21 L11 L13 L41 L86 M21 M31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7853&r=all |
| By: | Claudio Vitari (AMU - Aix Marseille Université, CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon); Elisabetta Raguseo (Polito - Politecnico di Torino [Torino]) |
| Abstract: | Previous studies, grounded on the resource based view, have already explored the relationship between the business value that Big Data Analytics (BDA) can bring to firm performance. However, the role played by the environmental characteristics in which companies operate has not been investigated in the literature. We inform the theory, in that direction, via the integration of the contingency theory to the resource based view theory of the firm. This original and integrative model examines the moderating influence of environmental features on the relationship between BDA business value and firm performance. The combination of survey data and secondary financial data on a representative sample of medium and large companies makes possible the statistical validation of our research model. The results offer evidence that BDA business value leads to higher firm performance, namely financial performance, market performance and customer satisfaction. More original is the demonstration that this relationship is stronger in munificent environments, while the dynamism of the environment does not have any moderating effect on the performance of BDA solutions. It means that managers working for firms in markets with a growing demand are in the best position to profit from BDA. |
| Keywords: | Resource based view,contingency theory,Big Data Analytics,customer satisfaction,financial performance,market performance,munificence,dynamism |
| Date: | 2019–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02293765&r=all |
| By: | Andrea Ariu; Katariina Nilsson Hakkala; J. Bradford Jensen; Saara Tamminen |
| Abstract: | This paper uses unique Finnish firm-level micro data on service imports, work-force composition, and firm characteristics to examine changes in employment composition and performance of Finnish service importers during a period of a significant increase in services imports (2002-2012). We use world service export supply shocks, which we allocate to firms based on their highly specialized service input structure, as an instrument to identify the impact of service offshoring. We find that firms that increase imports of service inputs reduce employment of low-skill service workers, increase employment of (high-skilled) managers and improve their performance in terms of sales (turnover), assets, service exports, and firm survival. The employment composition and performance responses to service imports differ across firms in the manufacturing sector and those in the service sector. |
| Keywords: | service offshoring, employment, firm performance |
| JEL: | F10 F14 L80 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7858&r=all |
| By: | Makoto Nirei (University of Tokyo); Jose Scheinkman (Columbia University) |
| Abstract: | We present a state-dependent pricing model that generates inflation fluctuations from idiosyncratic shocks on firms. A firm's nominal price increase lowers the other firms' relative prices, thereby inducing those firms' nominal price increases. This snow-ball effect of repricing causes the fluctuations of aggregate price without exogenous aggregate shocks. The fluctuations caused by this mechanism are more volatile when the density of firms at repricing threshold is high, and the density at the threshold is high when the trend inflation level is high. Thus, the model implies that the higher trend inflation causes the larger volatility of short-term inflation rates. Analytical and numerical analyses show that the model can account for the positive relationship between inflation level and volatility that has been observed empirically. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1451&r=all |
| By: | Leena Rudanko (Federal Reserve Bank of Philadelphia) |
| Abstract: | This paper studies a labor market with directed search, where multi-worker firms follow a firm wage policy: They pay equally productive workers the same. The policy reduces wages, due to the influence of firms’ existing workers on their wage setting problem, increasing the profitability of hiring. It also introduces a time-inconsistency into the dynamic firm problem, because firms face a less elastic labor supply in the short run. To consider outcomes when firms reoptimize each period, I study Markov perfect equilibria, proposing a tractable solution approach based on standard Euler equations. In two applications, I first show that firm wages dampen wage variation over the business cycle, amplifying that in unemployment, with quantitatively significant effects. Second, I show that firm wage firms may find it profitable to fix wages for a period of time, and that an equilibrium with fixed wages can be good for worker welfare, despite added volatility in the labor market. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:358&r=all |
| By: | Calligaris, Sara; Del Gatto, Massimo; Hassan, Fadi; Ottaviano, Gianmarco I. P.; Schivardi, Fabiano |
| Abstract: | Productivity has recently slowed down in many economies around the world. A crucial challenge in understanding what lies behind this “productivity puzzle” is the still short time span for which data can be analysed. An exception is Italy, where productivity growth started to stagnate 25 years ago. The Italian case can therefore offer useful insights to understand the global productivity slowdown. We find that resource misallocation has played a sizeable role in slowing down Italian productivity growth. If misallocation had remained at its 1995 level, in 2013 Italy’s aggregate productivity would have been 18% higher than its actual level. Misallocation has mainly risen within sectors rather than between them, increasing more in sectors where the world technological frontier has expanded faster. Relative specialization in those sectors explains the patterns of misallocation across geographical areas and firm size classes. The broader message is that an important part of the explanation of the productivity puzzle may lie in the rising difficulty of reallocating resources across firms within sectors where technology is changing faster rather than between sectors with different speeds of technological change. |
| Keywords: | missallocation; TFP; productivity; puzzle; Italy |
| JEL: | D24 O11 O47 |
| Date: | 2018–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90271&r=all |
| By: | Roberts, Mark J.; Yi Xu, Daniel; Fan, Xiaoyan; Zhang, Shengxing |
| Abstract: | In this article, we use micro data on both trade and production for a sample of large Chinese manufacturing firms in the footwear industry from 2002 to 2006 to estimate an empirical model of export demand, pricing, and market participation by destination market. We use the model to construct indexes of firm-level demand, marginal cost, and fixed cost. The empirical results indicate substantial firm heterogeneity in all three dimension with demand being the most dispersed. The firm-specific demand and marginal cost components account for over 30% of market share variation, 40% of sales variation, and over 50% of price variation among exporters. The fixed cost index is the primary factor explaining differences in the pattern of destination markets across firms. The estimates are used to analyse the supply reallocation following the removal of the quota on Chinese footwear exports to the EU. This led to a rapid restructuring of export supply sources on both the intensive and extensive margins in favour of firms with high demand and low fixed costs indexes, with marginal cost differences not being important. |
| Keywords: | demand; export market selection |
| JEL: | F14 L25 |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:90575&r=all |
| By: | Ufuk Akcigit; Sina T. Ates |
| Abstract: | In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting “best versus the rest” dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion. |
| Keywords: | business dynamism, market concentration, competition, knowledge diffusion, step-by-step innovations, transitional dynamics |
| JEL: | E22 E25 L12 O31 O33 O34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7854&r=all |
| By: | Sharma, Ajay |
| Abstract: | In this paper, we analyse misleading advertising competition between private firms (profit oriented) and consumer-oriented firms (concerned about consumer welfare) in the context of mixed markets. The nature of advertising in this paper is assumed to be non-rival in nature and is beneficial to all the firms in the market. We find that, both private and consumer-oriented firms incur positive expenditure on misleading advertising. Further, the profit of consumer-oriented firms is higher than that of private firms. Moreover, irrespective of whether firms are concerned about consumer welfare or not, the level of misleading advertising is socially excessive. |
| Keywords: | Misleading advertising, Non-rival advertising, Consumer-oriented firm, Mixed markets, Cournot competition |
| JEL: | D21 L1 L2 L3 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96189&r=all |
| By: | Iacopo Morchio (University of Vienna); Christian Moser (Columbia University) |
| Abstract: | We investigate the sources of the gender wage gap and its relation to firm heterogeneity. We document a gender wage gap of 20 log points conditional on education interacted with experience, state, industry, and occupation among workers in Brazil. Accounting for unobservable worker and firm heterogeneity, we find that around 46 percent of the residual gender wage gap is between firms, while the remainder is within firms. We highlight lower labor market mobility of women relative to men as an important explanatory factor for pay differences both within and between firms. We develop an equilibrium search model with firm productivity differences, worker ability differences, gender-specific amenities, and employer taste for discrimination. We use the estimated model to show that gender differences in life-cycle mobility across employers are a major contributor to the observed gaps and associated with sizable negative consequences for macroeconomic outcomes such as aggregate productivity, employment, and output. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:143&r=all |
| By: | Sumudu Kankanamge (Toulouse School of Economics); Alexandre Gaillard (Toulouse School of Economics) |
| Abstract: | This paper introduces a quantitative stylized life-cycle model with entrepreneurship and endogenous business selling, buying and founding decisions. Using a new dataset on the small business sale market as well as the SSBF, the SBO and the PSID datasets, we document the importance of the buying, selling and founding margins for entrepreneurs and find large mismatches on the business sale market. The data also reveal a key role for age and life-cycle dynamics for entrepreneurial entry and exit decisions. Using the model, we find that the combination of (i) illiquid business assets, (ii) frictions on the business sale market and (iii) the life-cycle components of entrepreneurship are key to reproducing our empirical finding. Finally, we simulate a large demographic event akin to the baby-boomers generation reaching peak retirement age and evaluate the macroeconomic outcome of such a change. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1503&r=all |
| By: | Jesse Perla (University of British Columbia); Carolin Pflueger (University of British Columbia); Michal Szkup (University of British Columbia) |
| Abstract: | We investigate how a presence of limited liabilities distorts firms’ investment decisions. We consider a simple model where firm owners are protected by limited liabilities and have to decide how much to invest as well as how to finance their investment. In contrast to earlier work, we find that, depending on the firm’s fundamentals, limited liabilities can lead to either under- or over-investment; and discuss when over-investment is more likely to occur. We then characterize condition under which over-investment happens and provide intuition for why it occurs. We also investigate how our results depend on the type of claims issued by the firm and their relative priority. Finally, we provide empirical evidence consistent with predictions of our model. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1038&r=all |
| By: | Mengxiao Liu; Daniel Trefler |
| Abstract: | Products often bundle together many functions e.g., smartphones. The firm develops the big idea (which functions to bundle) and then chooses one supplier per function. We develop a model featuring holdup in which the firm's bargaining power declines in the number of suppliers. Greater scope as measured by the number of suppliers exacerbates holdup, but this is partially offset by the appropriate choice of vertical integration or outsourcing. Our main result flows from the empirical observation that the number of functions varies across products within an industry (firm heterogeneity). We introduce the notion of an 'ideas-oriented' industry in which more productive firms have higher marginal returns to introducing a new function. We show that more productive firms will (1) have more suppliers and (2) be more likely to integrate those suppliers. We take this to the data using a neural network to predict whether or not each of 29 million PATSTAT patent applications involves new/improved functions. We merge these patents with Capital IQ data on 55,000 companies and their supplier networks. We show that in industries where patents are skewed towards new or improved functions, more productive firms have more suppliers and are more likely to integrate these suppliers. |
| JEL: | F1 F12 F14 L14 L15 L23 L24 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26320&r=all |
| By: | Ufuk Akcigit; Emin M. Dinlersoz; Jeremy Greenwood; Veronika Penciakova |
| Abstract: | Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC-backing increases a startup’s likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth. |
| Keywords: | venture capital, assortative matching, endogenous growth, IPO, management, mergers and acquisitions, research and development, startups, synergies, taxation, patents |
| JEL: | G24 N20 O30 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7860&r=all |
| By: | Martina Lawless; Zuzanna Studnicka |
| Abstract: | In this paper we present new empirical evidence on the relationship between exporting experience and the duration of export relationships at the firm-product-destination level. Our starting hypothesis that more experienced exporters would have longer lived product-market trade relationships is quite strongly rejected in baseline specifications. However,we find that when we introduce interaction effects between experience and product scope and also between experience and similarity to the firm's core export product, our results change considerably. These findings suggest that at some level of experience as an exporter there is a decline in the marginal return on the positive effects on survival of product diversification and proximity. We suggest that this is evidence that more experienced firms launch product-destination pairs further away from their core competence and/or into more risky markets which therefore increases the risk of failure of any individual product-destination pairing. |
| Keywords: | Duration of trade; Survival models; Export experience; Multi-product firms |
| JEL: | F10 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201919&r=all |